Avoid Reporting Penalties! Important Year-End Reminder to File!

 

Attention business owners: the Corporate Transparency Act (CTA) filing deadline is approaching! If you own a corporation, LLC, or similar entity, now is the time to confirm whether your business needs to file a Beneficial Ownership Information (BOI) Report with FinCEN by December 31, 2024. This year-end reminder can help ensure compliance, avoid penalties, and protect your business.

What is the CTA and Who Must File?

The CTA was enacted to combat financial crimes by requiring certain U.S. businesses to report information on their beneficial owners. Most privately held U.S. corporations, LLCs, and partnerships are required to file, with a few exceptions. Businesses that may be exempt include:

• Publicly traded companies
• Large operating companies (defined as entities with over 20 U.S. employees, a physical U.S. office, and over $5 million in U.S.-sourced gross receipts)
• 501(c) charitable organizations, banks, credit unions, and certain regulated entities

There are several additional exemptions beyond these categories. If you’re uncertain whether your business qualifies for an exemption, please contact us—we’re here to help ensure you understand and meet your CTA obligations.

Key Deadlines and Updates

• Existing Entities: Formed before January 1, 2024, must file by December 31, 2024.
• New Entities: New entities formed on or after January 1, 2024, but before December 31, 2024, must file their Beneficial Ownership Information (BOI) reports within 90 days of formation. However, starting January 1, 2025, newly formed entities will be required to file within 30 days of formation.
• Updating Changes: If there are any changes to beneficial ownership or control (e.g., a new owner or change in control), the information must be updated in the BOI Report within 30 days of the change.

What are the Penalties for Noncompliance?

Failure to file the BOI Report or providing inaccurate information can lead to significant penalties:

• Civil penalties: Up to $500 per day for ongoing noncompliance
• Criminal penalties: Fines up to $10,000 and/or up to two years of imprisonment for knowingly submitting false information.
• Liability for Executives and Senior Officers: Company officers who are aware of, or responsible for, the failure to file or inaccuracies in reporting can be held personally liable. This means that executives and senior officers of Reporting Companies may face personal fines or criminal penalties if they knowingly allow noncompliance or misreporting.

Recent Updates for 2024

Since the CTA took effect, there have been some important updates business owners should be aware of:

• Extended Deadlines: Starting January 1, 2025, newly formed entities will need to report within 30 days of formation, instead of 90 days.
• Expanded Guidance: FinCEN issued updated FAQs in October 2024 to clarify beneficial ownership definitions, “substantial control,” and other reporting details.
• Exemptions for Disaster-Affected Areas: Entities in areas impacted by recent hurricanes have received a six-month extension to meet BOI reporting requirements.
• Ongoing Legal Challenges: Several lawsuits are challenging the CTA’s constitutionality, including one by housing cooperatives in November 2024. These cases may impact future compliance requirements, though FinCEN continues to enforce the CTA for most businesses.

Who is a Beneficial Owner?

Under the CTA, beneficial owners are individuals who:

• Directly or indirectly own or control 25% or more of the company’s ownership interests, which includes equity, stock, and other ownership instruments such as options or convertible securities that would meet the 25% threshold if exercised.
• Exercise “substantial control” over the company’s operations or key decision-making.

“Substantial control” can involve roles or actions such as:

• Holding a senior officer position (e.g., CEO, CFO, or COO)
• Having authority over major contracts, financial decisions, or policy changes
• Possessing voting power or influence over the company’s operations and direction

For each beneficial owner, the CTA requires companies to collect and report:

• Full legal name, date of birth, and residential address
• A non-expired government-issued ID (e.g., driver’s license or passport)

To streamline this process and reduce the handling of sensitive information, beneficial owners have the option to apply for a FinCEN ID. A FinCEN ID allows owners to provide a unique identifier in place of their personal details, which can be entered in the Beneficial Ownership Information (BOI) Report instead of their direct information. This option can help protect personal data and ease the administrative burden of compliance.

If your business needs assistance gathering this information or applying for FinCEN IDs for beneficial owners, our team is here to help.

Next Steps

If you’re unsure whether your business qualifies as a Reporting Company or need assistance with gathering information, our team, at Hoge Fenton, can guide you through each step of the process to ensure timely and accurate filing.