New federal reporting law carries hefty penalties for small businesses

Small businesses in Montana and throughout the country will soon need to comply with a new federal reporting law or potentially face steep consequences, including fines of up to $500 daily or even jail time.

In January 2021, the United State Congress enacted the Corporate Transparency Act (CTA), with a goal of detecting and reducing money laundering, fraud, and other misconduct through shell companies. As part of the legislation, almost all entities are required to file a report with details about their owners and the individuals who register the entity to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

The goal of the reporting requirement is to create a transparent and accessible record that reveals the individuals or entities that have ultimate ownership or control over each company.

According to FinCEN, the CTA reporting rules will impact more the 32 million entities in place by the end of this year and roughly 5 million entities formed per year in 2024 and beyond.

Does my business have to file a report?

Each corporation, limited liability company, or other entity established by registering with the Montana Secretary of State or a comparable office in another state or Indian tribe must file a Beneficial Ownership Information Report (BOIR) unless it meets an exemption. A mere fraction of Montana businesses will qualify for an exemption. The FinCEN FAQs page — http://www.fincen.gov/boi-faqs#C_2 — outlines a comprehensive list of the 23 types of entities eligible for an exemption.

Unregistered companies, for example, sole proprietorships and some general partnerships, do not have to file a BOIR.

What information needs to be reported?

Under the CTA, reporting companies are required to provide detailed information about the company, its beneficial owners, and the company applicant. The regulations provide specific definitions for each term.

Company information

As part of the BOIR, each company must report its registered name, any alternate business names, the street address of its principal place of business, tax identification number, and jurisdiction of formation.

Beneficial owners

Each entity must report its beneficial owners, which includes anyone who exercises either direct or indirect control over a company or who has at least a 25% ownership interest in the business. As the regulations broadly define beneficial owners, essentially, anyone who serves as a senior officer, has the authority to appoint board members, or has substantial influence over the company must be included in the BOIR.

Company Applicant

If the entity is registered after Jan. 1, 2024, information about the individual who files the BOIR with FinCEN or directs the filing, known as the company applicant, must be included in the report. The information for the company applicant is not required for businesses formed before 2024.

For each beneficial owner and company applicant, the company must report the person’s full legal name, date of birth, current address, and identification number along with an image of the supporting document.

BOIR deadline and penalties

The CTA mandates entities adhere to specific deadlines for filing their reports. For companies registered prior to Jan. 1, 2024, the BOIR must be filed by Jan. 1, 2025.

All companies registered Jan. 1, 2024, and beyond, must file the initial report within 90 days of registration. Proposed rules issued by FinCEN on Sept. 27, 2023, extended the deadline from 30 to 90 days.

Beneficial owners of a company who fail to comply with the reporting requirements or deliberately provide misleading information on a BOIR can face penalties of $500 per day for each violation, a fine up to $10,000, and jail time up to two years.

Future reporting, updates, and corrections

In addition to submitting the initial BOIR, businesses must update their report with any changes to the business or beneficial owners or if it becomes aware of any inaccuracies in a previously filed report. Changes and corrections must be filed within 30 days.

Unlike the Montana Secretary of State, which requires annual reporting to maintain good standing, the BOIR does not have to be filed each year unless a change occurs.

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Tony Dalton is an associate attorney with the Helena branch of Silverman Law Office, PLLC.