🔒What business owners need to know about new federal filing requirements

AUTHOR'S NOTE: As an update to this article, on December 3, 2024, a Texas District Court issued a nationwide preliminary injunction blocking the enforcement of the Corporate Transparency Act.  This means that FINCEN cannot enforce the requirements.  We do not know when or if this will change. To be conservative, we do recommend filing so you do not miss an update to this case and fall out of compliance. The penalties are just too harsh. 

There are major changes as well as new laws that now affect business owners that they never had in the past. How they will affect you and the penalties associated with them may be surprising.

In an effort to reduce tax fraud and other financial crimes, Congress passed the Corporate Transparency Act in 2021. This created a new reporting requirement as part of efforts to make it harder for bad actors to hide their ill-gotten gains. All entities that file documents with their secretary of state’s office, including newly formed corporations, LLCs, limited partnerships, and other entities, will need to file with the U.S. Treasury Department’s Financial Crimes Enforcement Network.

The report will require disclosing the owners of the entity or the beneficial owners of the entity. These rules apply to entities that existed before 2024, with a Jan. 1. due date for filing.

While this is part of the federal government’s attempt to look beyond shell companies set up to hide money, it unfortunately imposes burdensome requirements on most businesses.

Willful failure to report information and timely update any changed information can result in significant fines of up to $500 per day until the violation is remedied. If criminal charges are brought for not filing, larger fines and even possible imprisonment await. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report.

A beneficial owner includes owners who directly or indirectly own at least 25% or who exercises substantial control over operations. This includes non-owners that control the company and may just be employees, for example. This will include senior officers, board members, or others involved in significant decisions. Considering the fines, it is safer to file and include yourself.

If an entity is formed in 2024 or later, the applicant must be disclosed, including the person who registered the company and controls company filings.

All people included in the broad definition of beneficial owners will need to have their name, address, date of birth, and other personal information disclosed for the BOI filing. You also have to upload a copy of identifying documentation, like a driver’s license.

Most entities must file these reports by Jan. 1. However, entities formed in 2024 or after will have only 30 days from the entity’s formation or registration to file. There is a proposal to extend this to 90 days for entities formed in 2024 only.

Should any reported information change or a beneficial ownership interest be sold or transferred, the entity must report this within 30 days or risk penalties.Those changes may include a beneficial owner’s change of address or even providing an updated copy of identification.

Having a business owner remember to refile any of these changes on-time seems like a large risk. Falling out of compliance is very easy. We recommend having a business attorney do the filing for you.