The Beneficial Ownership Information Reporting Rule
Effective January 1, 2024, the Beneficial Ownership Information Reporting rule requires corporations, LLCs, and other entities created by filing documents with a Secretary of State (i.e. partnerships, S-corporations, etc.) to disclose individuals who substantially control or own 25% or more of the entity to the Financial Crimes Enforcement Network (FinCEN).
This rule aims to combat money laundering, tax fraud, and terrorist financing by increasing transparency.
Although 23 types of companies are exempt from the new reporting requirements (for example: publicly traded companies, non-profits, and other large operating companies), an estimated 32 million reporting companies may be impacted. Ignorance of the law is no excuse, the onus is on owners to understand and comply with the requirements.
For years, limited liability companies (LLCs) have been a popular entity structure for investors and small business owners seeking privacy and limited liability protection. In the past, anonymous LLCs would allow owners to keep their names and personal information off public records. In some states, LLCs can be formed without disclosing the owners’ identities on formation documents, preventing personal details from being publicly accessible online or in databases.
But the privacy that shielded business owners from harassment, lawsuits, and wealth exposure has now been exposed to the harsh light of public scrutiny.
This Isn’t A One Off: There’s An Urgency To Act
Reporting companies created or registered before January 1, 2024 will have one full calendar year (January 1, 2025 deadline) to file initial BOI reports.
For reporting companies created or registered after January 1, 2024, the CTA requires an initial BOI filing within 90 days of formation.
In addition, all reporting companies have 30 days to file any changes to previously disclosed BOI information. The bottom line is, companies and individuals have an ongoing obligation to maintain accurate and complete reporting to avoid penalties.
While there is a plethora of litigation challenging the constitutionality of the CTA, it remains in effect today.
The Real Risks of Non-Compliance
The Corporate Transparency Act (CTA) imposes significant penalties for companies that violate its reporting requirements. The federal government will enforce a civil penalty of over $500 per day for each day the violation continues.
If that doesn’t get your attention, a criminal fine of up to $10,000 and/or imprisonment for up to 2 years for willfully providing a false or fraudulent BOI report – or failing to update a previously filed BOI report – is on the books too.
For more egregious violations, such as knowingly submitting false Beneficial Ownership Information as part of another illegal activity the penalties and criminal implications are even greater.
Some Underlying Merits of LLCs Are Intact
While the new federal regulation will lift the veil of anonymity for LLCs, they still offer several possible advantages.
LLCs create a legal separation between the owners and the business assets and liabilities. They are also exempt from the requirement to hold annual meetings or record meeting minutes, reducing publicly available information about the business activities and its owners. And from a financial planning standpoint, we believe LLCs continue to offer several benefits, in particular within estate planning.
This change has significant implications, and those who fail to comply risk severe penalties. It’s crucial for LLC owners to take immediate action and review their situation with a seasoned financial advisor.
Seek Professional Guidance
Navigating the complexities of the Beneficial Ownership Information Reporting rules can be challenging, especially for single member LLCs and small business owners who may not have dedicated legal or compliance teams. It’s important to seek help to understand the reporting process, determine beneficial owners, gather required information, file through FinCEN’s system, and avoid penalties for non-compliance.
Financial advisors like those at Graypoint have experience assisting clients by identifying appropriate resources to comply with regulatory changes.
LLCs have been a core building block of financial planning for years, and we still believe they provide significant benefits.
We’ll work with you to develop a comprehensive strategy that protects your interests while adhering to the new law.
Don’t let the end of anonymity for LLCs catch you off guard. Take action today by scheduling a consultation with a Graypoint financial advisor. Protect your business, avoid costly penalties, and stay ahead of the curve in an ever-changing regulatory landscape.
