*UPDATE: The Federal District Court recently ruled that the Corporate Transparency Act (CTA) is unconstitutional and is permanently prohibiting the enforcement of the CTA. Read through an updated article here: An Update on the Corporate Transparency Act: 3 Things You Need to Know
If you own a business, get ready. There’s a new federal reporting requirement for business owners, and you don’t want to ignore it. If you do, the penalties are high.
Here are seven key things to know.
What is the new requirement?
Effective Jan. 1, more than 32 million business owners need to complete a special form called the Beneficial Ownership Information Report. You’ll need to file it with the Financial Crimes Enforcement Network (FinCEN), an arm of the U.S. Department of the Treasury.
The form is required as part of the 2021 Corporate Transparency Act. This act aims to reduce money laundering and the concealment of illicit funds by targeting shell companies and many other entities.
Who needs to file the Beneficial Ownership Information Report?
Entities including corporations, pass-throughs, partnerships, estate and benefit plans, and foreign companies registered to do business in any U.S. state or Indian tribe will have to share information about their beneficial owners. Sole proprietorships are not included.
Beneficial owners are generally shareholders who own at least 25% of an entity, which may include:
- Profit interests
- Options
- Warrants
- Other instruments like convertible notes
Besides shareholders, beneficial owners also include people that exercise substantial control over an entity. This means senior officers, including:
- President
- Chief financial officer
- General counsel
- Chief executive officer
- Chief operating officer
Any other officer who performs a similar function to those listed above may be required to file a report. This includes anyone with the authority to appoint or remove officers or a majority of directors of the reporting company. It could also include an important decision-maker for the reporting company, or any other individual with substantial control.
It’s important to note that there may be more than one beneficial owner of a company. Filings also need to be updated when a beneficial owner has a change of address or marital status or obtains a new driver’s license. There’s no fee to file this report.
There are 23 types of businesses that are exempted from this rule. They include:
- Banks
- Credit unions
- Tax exempt entities
- Large operating companies (generally companies with more than 20 U.S.-based employees and revenues over $5 million)
Many of these entities are exempt because they’re providing similar information via other means. Review the full list in the FinCEN’s Small Entity Compliance Guide.
What information is required?
The information you need should be easy to obtain. It includes your company’s legal and trade names, or your “doing business as” name, and street address (post office boxes are not allowed). You’ll also need to include the state where your company was formed along with relevant tax and employer identification numbers.
In addition, you’ll need to provide an image of your articles of incorporation. If you can’t find this, you can likely obtain it from your state.
Each beneficial owner will need to provide their full legal name, birthdate, and home address (again, post office boxes are not allowed). They’ll also need to provide an image of either an unexpired passport, driver’s license, or document issued by a state, local government, or Indian tribe.
What’s the due date and where do I report?
Filings for existing companies must be completed by Jan. 1, 2025. For new entities created after Jan. 1, 2024, reports are required within 90 days. You can file your reports electronically on FinCEN’s website, where you will get an electronic receipt.
How secure is my information?
Under the Corporate Transparency Act, FinCEN is allowed to permit federal, state, local, and tribal officials, as well as certain foreign officials who submit a request through a U.S. federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.
Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company.
Otherwise, FinCEN will store information in a secure, non-public database. FinCEN uses the same information security methods and controls that are typically used in the Federal government to protect non-classified but sensitive information systems.
What happens if I don’t comply?
The penalties are steep. You could incur fees up to $500 a day, up to $10,000, and up to two years in jail (per occurrence) if you intentionally provide incorrect information.
Where can I find more information?
I strongly recommend working with an experienced certified public accountant, attorney or business advisor to complete this report. It’s also important to ignore the inevitable solicitations you’ll receive from firms that claim to be experts in this area. Seek out a professional you know, or ask for a referral.
Check out these essential resources on this new reporting requirement:
- Read the full list of requirements and and find out if your entity is exempt in FinCEN’s Small Entity Compliance Guide.
- Head to FinCEN’s website to file your report.
- Read FinCEN’s Beneficial Ownership Information FAQs.
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View Comments (43)
We have a pllc, gp and two llc member managed entities. Only the pllc & llc's are registered through the SOS. Which entities will need to be reported?
We are Homeowners Association. Our income is only the HOA dues and some interest on our bank accounts. The HOA Directors are elected by the HOA unit owners and the Board of Directors elects it's officers. We are incorporated and have filed Articles of Incorporation with our Secretary of State.
Do we need to file?
Hi Stan - Because you are an incorporated HOA, you would need to report your beneficial owners.
If Tax professionals / CPAs file the report for clients, is this covered under their Hartford E&O?
Hi Phillip,
Determination of coverage under Accountants E&O or Professional Liability policies is dependent on the specific facts and policy language. Questions concerning specific coverage scenarios should be discussed with a licensed insurance professional.
Thank you!
Exempt Option #21 is a bit confusing - Does a company need to meet all 3 of those requirements A, B, & C to be exempt? We for example qualify for A) more than 20FT employees and B) have a physical presence/building. But we do not qualify under C) filing a tax return with $5m+, at least federally. We file a return with our State, but federally income is reported on K1s by owners as we are an S-Corp. The wording of the exemption makes it unclear if you have to qualify under A or under B&C in combination due to the missing conjunctions in how it's written.
Hi Jenn, I agree this is unclear but as a rule of thumb I would submit the information regardless.
Trying to figure out if I am required to do this. I have a S-corporation.
Yes, you are required.
Our CPA said to take no action at this time because of pending legislation.
My business is a sole proprietor LLC. Assuming that this remains a requirement when all is said and done, do I need to file this report?
Hi John, there's nothing official from the Treasury but I read it that if only a schedule c is filed and there’s no official entity/return filed separately for an LLC then the organization would be exempt.
I have seen conflicting information on LLCs that are sole proprietorships. Does this entity need to file?
Hi Helen, Thank you for commenting! There's nothing official from the Treasury but I read it that if only a schedule c is filed and there’s no official entity/return filed separately for an LLC then the organization would be exempt.
Gene, it appears LLC's that report via Schedule C are exempt, but S-Corp's are not, correct?
Hi Jeffrey, thanks for reaching out! There's nothing official from the Treasury but I read it that if only a schedule c is filed and there’s no official entity/return filed separately for an LLC then the organization would be exempt.
I'm a bit confused.. so do we have to file or has it been ruled unconstitutional?
Importantly, according to a statement from FinCEN, the decision is limited at the moment to the plaintiffs—members of the National Small Business Association, a national association with 65,000 members. As of now the Treasury Dept is proceeding forward with all other requirements. So, no it’s not fully suspended.