As of January 1, 2024, most small businesses will have to report to the federal government who owns the business. The mandatory reporting is the new Beneficial Ownership Information (BOI) Reporting system set up by the Financial Crimes Enforcement Network (FinCEN), which is a division of the U.S. Treasury Department.
In 2021, the U.S. Congress passed the Corporate Transparency Act and part of this act creates new reporting requirements for all but a few businesses. The Act specifically targets owners of Limited Liability Companies (LLCs) and other small business entities that have traditionally been shrouded from federal transparency laws. Under the new law, the business will have to provide:
- The owner’s full name
- Date of birth
- Residential address (no P.O. Boxes)
- The number from an acceptable identification document such as a passport or U.S. driver’s license
- The name of the issuing state or jurisdiction of identification
- An image or photocopy of the ID
The report is quite extensive! However, the purpose of the act is to make it harder for individuals to create entities to hide assets or engage in criminal activities. In the past, it was hard to find the owner of an LLC. Many states, including Virginia, do not require the owner of an LLC to be listed on state recording documents. Unlike Corporations, LLCs do not provide such information on annual reports to the Virginia State Corporation Commission.
Many small businesses owners may not know they need to register. But the FenCEN website is very user friendly and has step-by-step instructions to file a report. The information is easy to follow, but, as with any type of legal compliance, there are always grey areas.
For instance, the law defines what a Beneficial Owner is and what exemptions may exist for certain businesses. The website has a great FAQ section and even provides videos to explain the new reporting rules.
If a company or owner fails to submit the BOI report to FenCEN, they can face fines and criminal prosecution. Thankfully, businesses have a little time to file their report. Businesses that existed prior to January 1, 2024, have until January 1, 2025, to file their initial report. Businesses created in 2024 will have 90 days to file their initial report.
Still have questions? We have answers! The Law Library, housed in the Richmond Room, will be hosting another round of its Small Business Legal Workshop at several branch locations in February and March. We will discuss this and many other legal issues for small businesses. It is co-hosted with local attorneys and representatives from the Small Business Development Center.
Check the calendar for details. You can also contact me with questions or set up an appointment to discuss your small business needs. Email, email@example.com, or call 804-646-3425. We are here to help!