Why This Matters to Every Business Owner
As a dedicated partner to our small business community, Bryant & O’Connor Law Firm is committed to sharing important information that you might find helpful, but this post is particularly urgent. A crucial update in the business landscape is the introduction of the FinCEN’s Beneficial Ownership Information Reporting Rule under the Corporate Transparency Act. Congress passed the Corporate Transparency Act in 2021 to combat bad actors who use shell companies to commit money laundering, tax fraud, and other
illicit activities. While it sounds like the intent is good, this new mandate affects nearly all LLC and Corporation owners, with very few exceptions. If you have an LLC, Corporation, or other entity registered with the Secretary of State, please take note of your obligations.
What is Beneficial Ownership Information?
Beneficial ownership information refers to details about individuals who own or control a company, either directly or indirectly. This means if you hold substantial stakes or play a significant role in decision-making in an LLC or Corporation, these changes concern you. For more details, please refer to FinCEN’s FAQ’s.
Who Needs to Report and When?
Starting January 1, 2024, most domestic and foreign entities registered in the U.S. are required to report. If your entity was formed before this date, you have until January 1, 2025, to submit your initial report. For entities established on or after January 1, 2024, the deadline was originally within 30 days of formation, but FinCEN has recently extended the 2024 deadline to 90 days. That deadline may shorten in the future.
Reporting Portal and What to Expect
The portal for reporting, expected to be live post-January 1, 2024, will presumably be linked on https://www.fincen.gov/ . The process will involve submitting personal information, including residency, driver’s license, and passport details. As the portal is not yet open, its exact layout and functionality remain to be seen, but hopefully it won’t be too complex. We will keep a close eye on its development, so check back with us after the New Year to see if we have any updates.
Penalties for Non-Compliance
The penalties for failing to comply are substantial. The civil penalty amounts to $500 per day for failure to accurately report. Furthermore, willful neglect or misinformation could lead to up to two years in prison.
Anticipated Volume of Reporting
FinCEN expects over 32 million filings in the first year as almost all existing businesses will need to make a submission. This is an extraordinarily high volume and might pose challenges both for FinCEN and reporting entities. In future years, there are expected to be over five million filings per year for new companies and updates to existing companies.
Exemptions and Special Cases
There are 23 types of entities exempt from this reporting, including large operating companies and entities under specific federal regulations like banks and certain nonprofits. However, the majority of LLC and Corporation owners will fall under this requirement, and we would suggest that you assume that you must comply unless you get a qualified legal opinion that you are exempt.
The Role of Legal and Accounting Professionals
The expectation is that reporting will not be overly complicated for many entities, which means self-reporting without professional assistance is possible. However, seeking professional guidance from attorneys or CPAs may be prudent to ensure accuracy and compliance. When you are forming a new company going forward, your CPA or attorney should address this reporting requirement with you, or if not, you need to proactively address this with them. However, for corporations and LLCs formed before 2024, you are unlikely to have engaged your attorney or CPA to help you complete this additional requirement, and thus you will need to reach out to them if you’d like to hire them to handle this. Although this may be seen as a burden, it is at least a good opportunity to make sure your company records and ownership information and documents are up to date.
How We Can Help
At Bryant & O’Connor Law Firm, we understand that these new requirements may create a burden for some of you. We’re monitoring updates and are taking notes on how to help our clients. Please note that if we helped you create a company prior to January 1, 2024, we will not have been engaged to fulfill your reporting obligations, and therefore it’s your obligation to proactively reach out to us if you’d like our help. Of course, you are welcome to submit the report yourself if you prefer and are comfortable. Starting on January 1, 2024, we will be addressing this issue with new clients when they engage us to create a company.
I also want to mention that we will offer our law firm’s active annual Legal Membership Program members assistance with reporting for their companies in 2024. If you’re interested in joining the Membership Program, please let us know.
Conclusion: Proactive Compliance is Key
With the new FinCEN reporting requirements, proactive compliance is crucial. While the process may seem daunting, understanding and preparing for these changes is vital to avoid hefty penalties and legal complications.
Disclaimer
This blog post is intended for informational purposes only and is not legal advice or the creation of an attorney-client relationship. Please call us if you would like assistance with this matter or another area of our practice.