Do you have an LLC? Do you want to pay the federal government $500 per day in penalty fines? If not, then action needs to be taken before year-end!
The Corporate Transparency Act (CTA) now has a Beneficial Ownership Information (BOI) reporting requirement that could cost you over $150,000 in penalty fines every year, and potential imprisonment, unless you file a reporting form online. If this sounds absolutely ridiculous – you are not alone! The good news, it only takes 5-10 minutes to complete online.
CTA was enacted as part of the National Defense Authorization Act for Fiscal Year 2021 and represents a compliance step in combating money laundering, terrorist financing, and other financial crimes in the United States. The main piece of CTA is the Beneficial Ownership Information (BOI) reporting requirement, which is a mandate that aims to enhance transparency regarding who truly owns and controls companies operating in the U.S.
Fighting Crime through the Corporate Transparency Act and BOI Requirements
The CTA was enacted in response to growing concerns about using anonymous shell companies for illegal financial activities. Often formed with minimal information and no significant operations, Shell companies can be exploited to conceal ownership and launder money. By requiring companies to disclose their beneficial ownership information, the CTA seeks to close a loophole that allows for anonymous corporate structures.
The Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of the Treasury, is responsible for implementing the CTA’s BOI reporting requirements. These requirements apply to entities formed in the U.S. or foreign entities registered to do business in the U.S., with a few exemptions.
What is BOI, and Who is a Beneficial Owner?
Beneficial Ownership Information (BOI) refers to individuals who ultimately own or control a business. According to the CTA, a “beneficial owner” is anyone who, directly or indirectly, exercises substantial control over the entity or owns or controls at least 25% of the ownership interests.
Beneficial ownership goes beyond legal ownership, as it encompasses any individual who has influence or control over the company, even if they are not a named shareholder. This can include individuals who make strategic decisions, influence management, or have significant control over the entity’s operations. The CTA requires companies to disclose the following BOI for each beneficial owner:
- Full legal name
- Date of birth
- Residential or business address
- Passport or driver’s license number
Who Does NOT Need to Comply with BOI Reporting?
There are several exemptions to this requirement. Entities already subject to federal or state oversight – such as banks, securities firms, insurance companies, and large operating companies with over 20 full-time employees, $5 million in revenue, and a physical presence in the U.S. are exempt from filing BOI reports.
Deadlines and Compliance Requirements
Starting January 1, 2024, newly formed companies have 30 days from formation to file their BOI reports with FinCEN. Existing companies formed before this date have until January 1, 2025, to submit their initial BOI reports. In cases of changes to beneficial ownership (such as a new owner taking a controlling interest), companies must update their BOI report within 30 days of the change.
Entities subject to the BOI reporting requirement must keep their records up-to-date, and failure to comply with the reporting requirements can result in substantial penalties. Fines for non-compliance can reach up to $500 per day, and in severe cases, individuals may face criminal penalties, including imprisonment.
Summary
BOI reporting is an additional compliance step for small businesses to help prove their financial legitimacy to the U.S. government. Justifiably, many small business owners will see this additional compliance mandate as unnecessary, but the consequences are too steep to overlook.
To avoid penalties and imprisonment, we recommend going to https://fincen.gov/boi and e-filing your BOI report. Many attorneys are contacting registered LLC small businesses and offering to submit on their behalf for around $500. If your LLC ownership structure is simple and straightforward, I’d recommend filing online yourself, but this is not legal advice.
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The material has been gathered from sources believed to be reliable, however Bedel Financial Consulting, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through Bedel Financial Consulting, Inc. Advisory services are only offered where Bedel Financial Consulting, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place.