The Status of Beneficial Ownership Reporting for LLCs: Should Small Businesses Submit Reports?
UPDATE: As of Jan 24, 2025, BOI Reporting requirements are now in effect; however, there is still no deadline to file. The Fifth Circuit is continuing to review the constitutionality of the Corporate Transparency Act. Oral arguments are scheduled for March 25, which could put the preliminary injunction back into play.
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On January 1, 2024, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) implemented reporting requirements for Limited Liability Corporations (LLCs). The first deadline is January 1, 2025, but with pending litigation in some states, the question is, should businesses submit their Beneficial Ownership Reports?
Here is a breakdown of what business owners need to know about FinCEN’s requirements and the current litigation around them.
Background
The FinCEN Beneficial Ownership Reporting Requirement stems from the Corporate Transparency Act (CTA), which was enacted as part of the National Defense Authorization Act (NDAA) for Fiscal Year 2021. According to FinCEN, the goal is to combat money laundering, terrorist financing, and other illicit activities by increasing transparency around who owns and controls certain types of entities operating within the U.S.
What Does “Beneficial Ownership” Mean?
Beneficial ownership refers to the individuals who ultimately own or control a business. Beneficial ownership can include individuals who own a significant percentage of the company (usually 25% or more) or those who exercise control over important decisions, even if they are not owners or not included in the company’s official records.
What Businesses Need to Know
Who Needs to File
Most LLCs, corporations, and similar business structures must file a beneficial ownership report with FinCEN. Some exceptions exist, including publicly traded companies or certain inactive businesses.
What Needs to Be Reported
The report needs to include details about the beneficial owners, such as:
Full legal name
Date of birth
Residential address
Driver’s license number (or other identification)
When to File
The deadline for filing the initial report depends on when your LLC was formed:
For LLCs formed before January 1, 2024: You have until January 1, 2025, to file your initial report.
For LLCs formed between January 1, 2024, and January 1, 2025: You need to file within 90 days of formation.
For LLCs formed on or after January 1, 2025: The filing deadline is 30 days after formation.
Additionally, any updates or corrections to previously submitted beneficial ownership information reports must be reported to FinCEN within 30 days.
What Happens If You Don’t File
Failing to file a report or filing inaccurate information could result in penalties, including fines of up to $591 per day, up to $10,000 per filing, or even potential criminal liability.
Pending Litigation Regarding FinCEN’s Beneficial Ownership Reporting Requirements
The ongoing litigation in Alabama and Texas has created uncertainty about the future of FinCEN’s beneficial ownership reporting requirements.
Alabama
A federal district court in Alabama held that FinCEN’s beneficial ownership information reporting requirements were unconstitutional, but the ruling only resulted in exceptions for a small number of businesses. FinCEN is attempting to appeal the court’s ruling.
Texas
In Texas, a lawsuit has been filed challenging FinCEN’s beneficial ownership information reporting requirements.
Should Small Business Submit Beneficial Ownership Reports?
We recommend being prepared for both scenarios by filling out all required relevant, beneficial ownership forms but waiting to submit them until you absolutely have to.
If there is a final verdict that overturns the requirement, then the forms should NOT be submitted. However, if the appeal upholds FinCEN’s requirements, your organization should submit the prepared forms on time to avoid any fines.
The Bottom Line
The new beneficial ownership requirements are now in effect, but we’ll have to wait and see if they are upheld by the courts. It’s important to work with an experienced business advisor to understand how these requirements affect you and your business and to ensure that you are in compliance with the requirements to avoid any penalties.
Questions
Have questions about FinCEN’s requirements or how they may impact your organization? Our team of business advisors is here to help. Contact Us.