Each year, small business owners of LLCs and corporations must see to a number of year-end compliance tasks. In 2024, many owners will also need to prepare a beneficial ownership information report to submit to the Financial Crimes Enforcement Network (FinCEN).
Beneficial ownership information reporting is a new federal requirement of the Corporate Transparency Act (CTA). The deadline for millions of qualifying businesses is January 1, 2025.
Tim Jensen, Manager of Customer Service for BizFilings, explains which businesses are affected by the January 1 deadline and the information they are required to submit. He also discusses ongoing compliance responsibilities for CTA, the different requirements and deadlines for qualifying businesses formed or registered in 2024 and beyond, as well as penalties for late filings.
This podcast is part of a series focusing on the Corporate Transparency Act and beneficial ownership reporting requirements.
Greg Corombos: Hi. I'm Greg Corombos. Our guest in this edition of Expert Insights is Tim Jensen, Manager of Customer Service for BizFilings. This podcast is one in a series focusing on the Corporate Transparency Act. The end of the year is normally a very busy time for small businesses. LLCs and corporations have compliance responsibilities that need to be taken care of. Besides fulfilling state annual reports and franchise tax obligations, many LLCs and corporations will also need to file a beneficial ownership information report, or BOI report, with the Financial Crimes Enforcement Network, also known as FinCEN, by January 1, 2025. The BOI report is a new federal requirement mandated by the Corporate Transparency Act, or CTA. And that act went into effect earlier this year. And Tim, it's always great to have you with us. Thanks for your time today.
Tim Jensen: Thanks, Greg. It's great to be back talking about the Corporate Transparency Act today.
Greg Corombos: Well, let's dig right in here because I know people still have a lot of questions about this, and that's assuming they're aware of it at all. So let's make them aware. Well, we mentioned a moment ago about this January 1, 2025, deadline. Which businesses are affected by that filing date?
Tim Jensen: So the January 1, 2025, deadline applies to qualifying companies that were formed or created before 2024. I'd like to briefly touch on which companies are subject to the CTA filing requirements and the steps that they should take to determine if they are a qualifying company. These filing obligations extend to businesses that were created or registered through the filing of a document with the Secretary of State or a similar office. So businesses such as a sole proprietorship do not fall within the scope of these requirements, since they were not created through a state filing. But LLCs and corporations can be what are called reporting companies, which is the term used to describe those businesses that are going to be required to report beneficial ownership information to FinCEN. And a business should first confirm if they are exempt from having to report beneficial ownership information. Exempt businesses include institutions such as banks and credit unions, tax exempt entities, public utilities and larger operating companies, and many of these types of businesses are already subject to other regulatory reporting requirements. So that's why…the reason that they are actually exempt. And then next, for a business to have a January 1, 2025, filing date for their BOI report, it would have to meet the following three criteria. One, it has to meet the definition of a reporting company, meaning it's an LLC or a corporation or similar entity. And then two, it has to not qualify for one of the exemptions. And then three, it has to have been created or registered before January 1, 2024.
Greg Corombos: So then what information is contained in a BOI report?
Tim Jensen: The BOI report requires information about the reporting company and the beneficial owners to be provided. Beneficial owners are individuals who either directly or indirectly, exercise substantial control over a reporting company, or who directly or indirectly control at least 25% of the reporting company's interests. So this can be a person who has substantial influence or control over important decisions made by the company, like a president or a chief financial officer. But it also can be a person who directly or indirectly has an ownership interest, such as someone that owns or controls an intermediary entity that, in turn exercises substantial control over a reporting company. The information being supplied to FinCEN about the reporting company includes certain facts about the company, such as its legal or any doing business or fictitious names, main business address, and the jurisdiction where it was formed, as well as its taxpayer ID. For a beneficial owner, a reporting company would need to supply personal information, such as the owner's legal name, the date of birth, home address, and then an identifying number from an official ID document, such as a driver's license or a passport. And this also includes uploading a copy of the ID document for verification.
Greg Corombos: Tim, some business owners like to do things as soon as they know they have to comply. Others see the deadline and say, I got plenty of time. So why is it important to not wait until the end of the year to file a BOI report?
Tim Jensen: Yeah, especially because this is new, and there's a lot of uncertainty over it, it's really better to get the filing, you know, right the first time. So you want to make sure you have enough time to track down and gather and verify all the information that you need, including getting copies of those identifying documents of the beneficial owners. And if, by chance, your filing contains an error or a mistake, you have to file a corrective report no later than 30 days after you become aware of that inaccuracy or have a reason to know about it. So again, it's just a good idea to start getting everything in order so you have plenty of time to get it completed,
Greg Corombos: As if there wasn't enough incentive to comply, there are also consequences for not filing a BOI report on time. So what are those consequences?
Tim Jensen: Actually, this is one of my biggest areas of concern right now, simply because there are still around 90% of the estimated 30 plus million businesses that are expected to need to file who have not done so. And around a third of those businesses are confused over the filing requirements, and there can be stiff penalties for noncompliance. So for willful failure to file a complete or updated BOI report, there may be civil or criminal penalties, including fines of up to $591 for each day the violation occurs, and senior officers of a reporting company may also be held accountable for that failure.
Greg Corombos: You mentioned that a lot of this applies to businesses that existed on January 1 of this year. What's the filing deadline, though, if I formed my business during this year?
Tim Jensen: Reporting companies that were created or registered in 2024 and beyond are going to have different filing deadlines, as well as some additional filing requirements. Reporting companies created in 2024 and beyond must also provide personal information and identifying documents for what is called the company applicant. So a company applicant is the individual who actually helped create or register the company, whether they are directly responsible for filing the document, or if they were the primary individual responsible for directing or controlling the filing, meaning they're the ones that kind of put the filing together and put the information on the filing. And then a reporting company can have more than one company applicant for whom they will be needing to supply that information to FinCEN for, depending upon how many people may be involved. There are also different filing deadlines for reporting companies created or registered in 2024 versus in 2025 and beyond. So reporting companies that were created or registered in 2024 — meaning on or after January 1, 2024, and then before January 1, 2025 — they have 90 calendar days after receiving notice of the company's creation or registration to actually file their initial BOI report with FinCEN. But if a reporting company is created or registered on or after January 1, 2025, then they're only going to have 30 days to file its initial BOI report. So essentially, for 2024 they're giving, because it's a new requirement, they're giving entities an additional 60 days to do it. But starting next year, on January 1, 2025, they'll only have 30 days.
Greg Corombos: So everybody needs to get moving on this. But if your business started after the beginning of this year, you really need to get moving on this, if you haven't already. Tim, let's say I've already submitted an initial BOI report this year. Is there anything else I need to do at this point?
Tim Jensen: This is a great question. There is no annual or periodic filing requirement, but a reporting company is obligated to report either inaccuracies or changes to the reported information on the company and the beneficial owners within 30 days of them becoming aware of that change. It's important for businesses to have a system for keeping track of these changes, such as a name or address change, and it's particularly important to find a way to keep track of any changes to the beneficial owners, whether it be reporting a new owner or updating information on an existing owner. So for example, if an owner moves or if they change their last name through marriage, then the reporting company would need to actually file an updated report, as well as include an image of the identification document with all that new information.
Greg Corombos: Alright, for businesses that are just becoming aware of this, or have procrastinated a little bit and haven't filed their first report, or aren't sure if they even need to file, they haven't even examined the possible exemptions here, where's a good place for them to start?
Tim Jensen: Yeah, we always start with FinCEN itself. FinCEN has a lot of resources on its website, including an FAQ page and a Small Entity Compliance Guide, which is a great place to get your initial information. BizFilings also has a number of useful articles that can help you learn about the requirements and how to file. We've also developed a free BOI quiz that you can take to help determine if your business may be subject to the reporting requirements. And then finally, you can always seek legal advice if there is any uncertainty about your requirements and obligations.
Greg Corombos: Well, Tim, from what you said earlier, it sounds like there's a lot of businesses who will likely be required to file a BOI report, who still need to do so, and you've provided a ton of good information today to help them get that compliance in order. And so with just a few months left, hopefully more businesses will take the time to comply with this and file those reports. Thank you so much for your time today and sharing your expertise with us.
Tim Jensen: Thanks again for having me on, Greg.
Greg Corombos: Tim Jensen, Manager of Customer Service for BizFilings. I'm Greg Corombos reporting for Expert Insights. For more information on this topic, please visit bizfilings.com.
