As we discussed in parts one and two of this blog series, there’s a new compliance requirement for many small businesses: the Corporate Transparency Act. This law was designed to disrupt criminal activities such as money laundering by removing the cloak of anonymity from small businesses and revealing who funds them and controls their operations.

Under the Corporate Transparency Act, non-exempt businesses, known as reporting companies, must file a beneficial ownership interest (BOI) report with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

In this blog post, we’ll set out the five basic steps to compliance with the Corporate Transparency Act as well as the penalties for noncompliance.

Step 1. Determine your compliance deadline: When is your BOI report due?

As of this writing, there are three applicable deadlines for Corporate Transparency Act compliance. Reporting companies that existed prior to January 1, 2024, have a full year — until January 1, 2025 — to comply.

Businesses that are created or registered on or after January 1, 2024, but before January 1, 2025, must file their BOI reports within 90 days after receiving actual or public notice that the business’s creation or registration is effective. Note that this deadline was originally shorter, but FinCEN amended the reporting rule to allow businesses more time to adapt to the law and collect the necessary information.

Businesses that are created or registered on or after January 1, 2025, will have only 30 days from receiving notice of their formation to file their BOI reports.

Step 2. Calculate your business’s ownership interests and identify beneficial owners

Before you can file a BOI report for your business, you need to know who your business’s beneficial owners are under the Corporate Transparency Act. As we discussed in part two of this blog series, there are two ways that an individual can be considered a beneficial owner of a reporting company: based on owning at least 25% of the business’s interests or based on their ability to substantially control the business’s structure or operations.

If your business is owned by more than one individual, you should calculate how much of the business each individual owns. Ownership interests can be complex. They include any options or interests, regardless of whether those options or interests are exercised; the percentage of capital or profit interests that an individual receives as a percentage of the reporting company’s total capital and profit interests; shares of stocks; and any other type of ownership interest.

Step 3. If applicable, determine who should be listed as your company applicant(s)

Businesses that existed before January 1, 2024, can skip this step: they do not have to include company applicant information on their BOI reports.

New businesses, on the other hand — those that were created or registered on or after January 1, 2024 — must include identifying information about their company applicant or applicants in their beneficial ownership information reports.

Who should be considered a company applicant? The company applicant is the individual who personally filed the reporting company’s creation or registration document with the secretary of state or comparable office. If the person who filed the document did so at someone else’s direction, the individual who was primarily responsible for controlling the filing should also be listed as a company applicant.

Note that there may be only one company applicant, if the same person created and filed the document, or at most two company applicants, if one person acted on behalf of another.

Step 4. Complete your BOI report

By this point, you know when your BOI report is due and whose information you must include as a beneficial owner or a company applicant. Now it’s time to assemble the required information into a BOI report and submit it to FinCEN.

Beneficial ownership information reports can be submitted online; FinCEN does not charge a fee for filing an initial BOI report or updating or correcting an existing report.

A BOI report should include all of the following information:

• Information about the reporting company, including its legal name, any trade or “doing business as” names, the physical address (not a P.O. Box) of its principal place of business, the jurisdiction in which it was formed or registered, and its taxpayer identification number
• Information about the reporting company’s beneficial owner or owners, including their name, date of birth, residential address, and the identification number from an identification document such as a passport or U.S. driver’s license, along with an image of that identification document
• Information about the reporting company’s company applicant(s), if applicable, including the same information listed above for beneficial owners, except that a business address may be provided instead of a residential address if the company applicant works in corporate formation

Note that the only forms of personal identification that are acceptable are U.S. driver’s licenses, U.S. passports, and identification documents issued by U.S. state, local, or tribal governments. A foreign passport is acceptable as a form of personal identification only if the individual does not have any of the other forms of identification. All of these forms of identification must be current (not expired).

Step 5. If information changes or you learn of an error, file an update or correction within 30 days

While there is no requirement to file an annual beneficial ownership information report, the Corporate Transparency Act does require that reporting companies update their information whenever necessary to ensure that it remains complete and correct. Similarly, if a reporting company learns of an error in its previously submitted BOI report, it is required to promptly file a correction.

Both updates and corrections should be filed no later than 30 days after the date that the company learned of the change or error.

Businesses should be mindful that even small, routine changes may require an amendment to their BOI report. For example, if a business owner moves to a new address, renews their driver’s license or passport, or changes their name, that information must be updated with FinCEN. Changes to the business’s structure or ownership must also be reported, such as a change in senior leadership.

What are the penalties for failing to comply with the Corporate Transparency Act?

Willful failures to comply with the Corporate Transparency Act carry both civil and criminal penalties that can be levied against both the reporting company and its senior officers. The civil penalty is $500 per day for every day that the business is in violation; the criminal penalty is up to two years in prison and a fine of up to $10,000. These penalties may apply to a business that does any of the following:

• Willfully fails to file a BOI report or provide required information
• Willfully reports false information or withholds information
• Willfully fails to correct or update previously reported information

FinCEN has also noted that if a reporting company has inadvertently filed incorrect information, it “may avoid being penalized” if it corrects any mistake or omission within 90 days from the initial deadline for filing its BOI report.

Should you prepare and file your own BOI report?

Businesses are not required to hire a lawyer or other professional service provider to file their beneficial ownership information with FinCEN. FinCEN states that its guidance is intended to help reporting companies submit beneficial ownership information independently.

Whether you should prepare and file your own BOI report depends on the complexity of your business’s ownership and control and on your risk tolerance. If you are the only person involved in your business — no one else owns or controls any portion of the business or its operations — then you can probably follow these steps and file a complete and accurate BOI report without assistance.

For additional information, check out our comprehensive blog on the requirements of the Corporate Transparency Act, FinCEN’s resource page about the Corporate Transparency Act and list of answers to frequently asked questions, and the U.S. Chamber of Commerce’s guide to Corporate Transparency Act compliance for small business owners.

[View source.]