Small business owners need to stay informed about new regulations that may impact their operations. One such regulation is the Corporate Transparency Act (CTA), which introduces a significant reporting requirement for businesses. Central to this act is the Beneficial Ownership Information Report (BOIR), a mandatory filing designed to increase transparency and combat illegal financial activities. Here’s what you need to know about the CTA, the BOIR, and why it matters for your business.
What is the Corporate Transparency Act?
Congress introduced the CTA in 2021 to prevent the misuse of anonymous entities for illicit activities such as money laundering, tax evasion, and illegal financing. It requires some U.S. companies to disclose information about their beneficial owners. They must report this to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Treasury Department.
The CTA was created to prevent individuals with malicious intent from using U.S. entities to hide ownership or engage in illegal activities. The CTA was designed to prevent significant threats to national security and economic integrity.
What is the Beneficial Ownership Information Report (BOIR)?
The BOIR is the document businesses must file to comply with the CTA. It requires companies to report key details about their beneficial owners. Beneficial owners are individuals who directly or indirectly own or control 25% or more of the company, or who have substantial control over its operations.
Information required in the BOI report includes:
- Full Legal Name
- Date of Birth
- Current Residential or Business Address
- Unique Identifying Number: This can be a driver’s license, passport, or other government-issued ID.
Businesses must submit their BOIR to FinCEN who will keep the information private and inaccessible to the public. Only authorized government agencies and financial institutions (under specific circumstances) can access the information to combat financial crimes.
Who needs to file a BOI Report?
The reporting requirement applies to:
- Domestic corporations
- LLCs
- Other entities formed by filing documents with a state or tribal office
- Foreign entities registered to do business in the U.S.
Certain entities, such as banks, public accounting firms, and large operating companies, are exempt from this requirement. However, startups, small businesses, and other entities that don’t meet these exemptions will likely need to comply.
The Deadlines for BOIR Filing
Companies that existed on or prior to January 1st, 2024: Must report beneficial ownership by January 1, 2025.
Companies that were formed after January 1st, 2024, have different deadlines:
- Those created between January 1, 2024, and January 1, 2025, will have 90 days from either the actual notice of formation or public announcement, whichever comes first, to file their BOI report.
- Businesses established on or after January 1, 2025, will have 30 days from notification or public announcement of their formation to submit their first report to FinCEN.
Businesses must submit corrections or updates to previously filed information within 30 days of the changes.
Penalties for Non-compliance
Non-compliance with the Corporate Transparency Act can result in severe penalties. These include fines ranging from $500 per day to $10,000 per violation and up to two years of imprisonment.
How the CTA Affects Accounting Professionals
The CTA significantly impacts accounting professionals with new compliance and due diligence responsibilities. Accountants must help clients determine BOIR filing requirements. They assist in gathering and submitting necessary details for BOIR compliance.
This includes identifying beneficial owners, ensuring accuracy, and educating clients about penalties for non-compliance. Accountants may integrate these tasks into audits and business formation while staying updated on FinCEN regulations.
Where Business Owners Can Get Help with the BOI Report
While business owners can file their BOI reports on their own, many already manage a heavy workload. Consulting a knowledgeable advisor, such as an attorney or accountant, is highly recommended to navigate the process. This ensures compliance with the requirements and helps avoid potential penalties.
Need to file your BOI report? Click here to visit the FinCEN page for filing and more information: https://fincen.gov/boi
Why the CTA and BOIR Matters for Small Business Owners
- Compliance is Mandatory: If your business falls under the reporting requirements, filing a BOIR is not optional. Staying compliant helps avoid penalties and ensures smooth business operations.
- Organizational Impact: The process of identifying beneficial owners and collecting required information may require internal adjustments, particularly for businesses with complex ownership structures.
- Improved Financial Transparency: While the BOIR introduces additional compliance steps, it also enhances financial transparency, which can build trust with lenders, investors, and other stakeholders.
- Potential Costs: Small businesses may face costs associated with legal or accounting assistance to ensure proper filing. Factoring these costs into your operational budget is essential.
Delay of Corporate Transparency Act
More than 40 members of Congress have sent a letter to the FinCEN requesting a one-year delay to the CTA. FinCEN has stated that they have received about 10 percent of the required submissions so far. This compliance rate has been attributed to a general lack of awareness among the small business community.
This new Act will impact millions of small businesses. All small businesses must verify their compliance to avoid potential penalties for non-compliance.
Conclusion
The Corporate Transparency Act and its Beneficial Ownership Information Report represent a significant shift in financial transparency requirements for U.S. businesses. While the BOIR adds a layer of compliance, it also strengthens the financial system and reduces opportunities for misuse. Small business owners should act proactively to understand these requirements, gather necessary information, and meet deadlines. By doing so, you can ensure compliance while maintaining your focus on running and growing your business.
If you need funds to hire an accountant, attorney, or you’re seeking growth capital, NEWITY can help you secure affordable funding through the SBA 7(a) loan program.
