On January 1, 2024, the new requirement to file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) went into effect. More than 32 million entities – mostly small businesses – have to file this report, which is required by a federal law called the Corporate Transparency Act. Violations of this law can result in a civil penalty of up to $591 per day the violation continues and criminal penalties of up to $10,000 and two years in prison.
Below is a checklist of steps all small business owners should be taking now.
Step 1 – Determine if your small business is the type of entity that may have to file a BOI report
- Know your company’s entity structure – is it an LLC, corporation, limited partnership, limited liability partnership, business trust, sole proprietorship, or general partnership?
- Recognize that if it is an LLC or corporation, it is required to file a BOI report unless it qualifies for an exemption.
- Recognize that if it is not an LLC or corporation you will have to make a determination as to whether it will be required to file a BOI report in the absence of an exemption. You should review the definition of a “reporting company”, FinCEN’s guidance, and if necessary seek legal advice.
Step 2 – If you believe your small business has to file a BOI report, determine if it qualifies for an exemption
- Determine if it is exempt as a “large operating company.” (Meaning it has more than 20 full time employees in the US, an operating presence at a physical office in the U.S. and filed a tax return for the previous year showing more than $5 million in gross receipts or sales from U.S. sources.)
- Determine if it is exempt as an “inactive entity.” (Meaning it was in existence on or before January 1, 2020, is not engaged in active business, is not owned by a foreign person, hasn’t changed owners in the last 12 months, hasn’t sent or received funds in an amount greater than $1,000 in the last 12 months, and doesn’t hold any assets.)
- Determine if any other exemption applies to your company. If you are not sure you may wish to seek legal advice.
Step 3 – If you determine that your small business has to file a BOI report, do the following
- Determine who your beneficial owners are. (That’s every individual who substantially controls the company and/or owns or controls 25 percent of its ownership interests).
- If you are not sure who meets the definition of beneficial owner, you may wish to seek legal advice.
- Contact each beneficial owner to tell them that the Corporate Transparency Act requires your company to report personal information about them to FinCEN.
- Tell them they have the option to provide the information to the company or to apply to FinCEN for a FinCEN Identifier.
- Obtain the information that must be reported from each beneficial owner that is not going to apply for a FinCEN Identifier and tell them to let you know about any changes to the information before you file the initial BOI report.
- Compile the information about the company that must be reported and keep it up to date.
Step 4 – Implement a procedure to make sure the information you must report will be kept up to date
- Both so that it is current when you file your initial report and so that you file the required updated reports upon changes in the reported information
- Consider purchasing an entity management system if you don’t have one already.
- Make sure you have a secure system in place to store personal information.
Step 5 – Determine when and how you want to file your initial BOI report
- You have until January 1, 2025 to file. Decide if you want to file early or late.
- Decide if you want to file the report with FinCEN yourself, or if you want the assistance of a third party service provider such as CT Corporation.