Failing to file beneficial ownership information could cost you $500 a day and possible jail time.

By Kelly M. Arbogast, Esq.

Businesses must report certain identifying information to the federal government under a new law that took effect on January 1. Failing to follow this federal law, the Corporate Transparency Act (“CTA”), 31 U.S.C.A. § 5336, may result in hefty fines and possible jail time.

Businesses must file a Beneficial Ownership Information (“BOI”) report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). This report includes general information about companies and the individuals who control them.

The goal of the CTA is to try to prevent bad actors and criminals from creating shell companies, engaging in money laundering, committing tax fraud, financing terrorism, or committing other bad acts behind a wall of corporate anonymity, according to the Treasury Department.

We know that reporting information to a government authority can be daunting, so we’re here to help. Below, we’ve outlined the seven steps you need to take to ensure that your small business complies with this new law.

1. DETERMINE IF YOUR SMALL BUSINESS IS A “REPORTING COMPANY” REQUIRED TO FILE A BENEFICIAL OWNERS REPORT

All “reporting companies” are required to file a BOI report. If you own a business, chances are that you are a reporting company subject to this law, unless you qualify for a rare exemption. One such exemption is for a “large operating company,” which is a company that (1) employs more than twenty (20) full-time employees in the United States, (2) operates a physical office in the United States, and (3) has filed a federal income tax or information return for the prior year demonstrating more than $5,000,000.00 in gross receipts or sales.

FinCEN has outlined twenty-three (23) exemptions to filing a BOI report, which you can explore here. FinCEN has also published the following flow-chart to determine if your business is a reporting company or if it is exempt from the CTA’s reporting requirement:

Generally speaking, if your company was formed in the United States and operates in the United States, then it is a reporting company and is required to file a BOI report.

2. DETERMINE WHEN YOUR SMALL BUSINESS HAS TO FILE ITS INITIAL BENEFICAL OWNERS INFORMATION

A company created before January 1, 2024, has until January 1, 2025, to file its initial BOI report.

A company created on or after January 1, 2024, but before January 1, 2025, has ninety (90) days from the time it receives actual or public notice that the entity has been formed to file its initial BOI report.

A company created on or after January 1, 2025, will have only thirty (30) calendar days from the time it receives actual or public notice that the entity’s formation has become effective to file the initial BOI report and information about its company applicants.

So, if your 2024 New Years’ resolution is to form a business, make sure you file the required information within ninety (90) days of notice of formation.

3. ORGANIZE THE COMPANY’S REQUIRED INFORMATION

Every company that files a BOI report must disclose the following information:

      • the company’s full legal name;
      • any “trade name” or “doing business as” name;
      • the address of the company’s principal place of business (P.O. boxes are not permitted);
      • the jurisdiction of formation; and
      • the taxpayer identification number.

4. IDENTIFY THE BENEFICIAL OWNERS

A “beneficial owner” is any individual who either (1) exercises substantial control over the reporting company, such as a senior officer or other important decision-maker, or any individual who (2) owns or controls at least twenty-five (25) percent of the company’s ownership interests. This is a broad standard. If you’re not sure who qualifies as a beneficial owner, reach out to us.

5. IDENTIFY COMPANY APPLICANTS, IF ANY

A “company applicant” will only be included in the BOI report if the company is established on or after January 1, 2024. This is the individual who (1) directly files the document that creates the domestic reporting company and, (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing. If you’re not sure who qualifies as a company applicant, reach out to us.

6. ORGANIZE THE BENEFICIAL OWNER AND APPLICANT INFORMATION

While every small business must file the beneficial ownership information, only businesses formed on or after July 1, 2024, are required to also provide company applicant information. That information includes the following:

      • full legal name;
      • date of birth;
      • residential street address; and
      • unique identifying number and the issuing jurisdiction from either a
        • current US passport;
        • state or local ID;
        • drivers license; or
        • foreign passport.

Companies will also be required to upload an image of the document(s) from which the unique identifying number was obtained.

7. FILE YOUR BOI REPORT

Finally, you can file the BOI report electronically with FinCEN via FinCEN’s network. There is no filing fee.

OR ELSE! Intentionally failing to provide beneficial ownership information, or intentionally providing false information, could result in a penalty of $500.00 for every day the violation continues and up to five (5) years imprisonment.

For more information about the Corporate Transparency Act, call us at 412-209-3200 or email Karbogast@palawfirm.com to schedule a free, no-obligation consultation.