The Financial Crimes Enforcement Network has finalized the rules implementing the Corporate Transparency Act’s Beneficial Ownership Information reporting requirements. Starting January 1, 2024, most small businesses in the United States will be required to report their beneficial owners to FinCEN. This is a new federal obligation that did not exist before, and it affects millions of companies. Here is what you need to understand.
Who Must Report
Any entity created by filing a document with a state secretary of state or similar office is potentially a “reporting company” under the CTA. This includes LLCs, corporations, limited partnerships, and business trusts. Entities formed before 2024 have until January 1, 2025 to file their initial report. Entities formed in 2024 or later must file within 90 days of formation (shortened to 30 days for entities formed in 2025 and beyond).
Who Is Exempt
The final rule includes 23 exemption categories. The most relevant for small businesses is the “large operating company” exemption: entities with more than 20 full-time employees, more than $5 million in prior year gross receipts, and a physical office in the U.S. Banks, credit unions, insurance companies, SEC-reporting companies, and certain other regulated entities are also exempt.
What Gets Reported
For each beneficial owner, meaning any individual who directly or indirectly owns 25% or more of the company or exercises substantial control over it, you must report: full legal name, date of birth, current residential address, and a unique identifying number from a driver’s license, passport, or state ID, along with an image of that document.
What This Means for Your Business
If you own an LLC or corporation that does not meet the large operating company exemption, you have a new compliance obligation. The reporting is not complex, but it is mandatory, and the penalties for non-compliance are significant: civil penalties of up to $500 per day and criminal penalties of up to $10,000 and two years imprisonment for willful violations.
The effective date is over a year away, which gives you time to prepare. Identify your beneficial owners, gather their required information, and plan to file through FinCEN’s electronic system when it becomes available. This is a new ongoing obligation. Any changes in beneficial ownership must be reported within 30 days.