Small Businesses Will Be Subject to New Beneficial
Ownership Disclosure Rules Beginning 2024
Under the new beneficial ownership disclosure rules mandated by the Corporate Transparency Act, beginning Jan. 1, 2024, companies must file beneficial ownership information with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Existing companies must file within the year 2024, while a new company started during the year will have 30 days to file. It is estimated there will be 32.6 million filings in 2024, and five to six million filings each year thereafter. The penalty for failure to comply is $500 per day, capped at $10,000.
A beneficial owner is defined as any individual who exercises substantial control over a company, or who owns or controls at least 25 percent of a company. Existing businesses will have a year to comply. However, new entities formed after the first of the year will be faced with a 30-day deadline, with extremely severe penalties if they miss the deadline. The rule applies to any entity that is created by a state—corporations, LLCs and any other entity that is formed under state law. But it won’t apply to partnerships or sole proprietorships. It is similar to FBAR [Report of Foreign Bank and Financial Accounts] in that it uses the same portal for filing, and the information that you are required to provide is minimal and not onerous.
Very few small businesses are aware of the requirement. And when they are alerted to it, they think it doesn’t apply to them because they’re small—but actually it does apply to them. Large entities, such as publicly traded companies, are exempt because this information has already been provided as part of their annual and quarterly filings.
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The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.