By Dr. Jim Dahle, WCI FounderI'm really sorry to be the bearer of bad news, but if you own a small company, you have some work to do. Don't worry, it won't cost you any money, and it really won't take you that long. I just did it for six companies in less than an hour. But you definitely want to make sure you do it because the penalties for not complying with the Corporate Transparency Act are quite severe.
What Is the Corporate Transparency Act?
The Corporate Transparency Act was passed as part of the National Defense Authorization Act for Fiscal Year 2021. It requires businesses to file “beneficial ownership information” with the Financial Crimes Enforcement Network (FinCEN), a part of the Treasury Department. Its purpose is to prevent nefarious individuals from hiding their illicit activities behind shell corporations and LLCs.
You know how those asset protection guys were always telling you that if you created enough LLCs in enough states, nobody could figure out what you own? Apparently, there was some truth to that. In an effort to stamp out financial crime, we're now all required to register the “beneficial ownership” of our companies in a database at FinCEN. The information will not be publicly available, but it will be available to lots of government entities and, with the permission of the company, financial institutions.
Who Is a Beneficial Owner?
A beneficial owner is an individual—never another company or a trust or any other sort of non-person entity. If the owner of a company is a trust (like in our case), the trustees are listed as the beneficial owners. Beneficial owners have driver's licenses, birth dates, and residential addresses. They own at least 25% of the company or they are trustees of a trust that owns at least 25% of the company or they “exercise substantial control” over the company (i.e., they function in the company as president, CEO, COO, or CFO, or they have the ability to remove such senior officers). The act requires that each beneficial owner registers with FinCEN their name, residential address, birth date, driver's license (or similar ID) number, and a copy of their driver's license (or similar ID). It's free to register, and it only takes a few minutes to do online at this website.
More information here:
10 Reasons You Should Own a Business
When Does the Corporate Transparency Act Take Effect?
For a company that was already in existence on January 1, 2024, the deadline is January 1, 2025. If a company is formed in 2024, it has 90 days to register with FinCEN. If you become aware of an error or if information changes, you have 30 days from the time you became aware of the error or the information changed to correct it.
Corporate Transparency Act Penalties
The penalties for not registering are quite severe: $500 per day that you don't file. You can even face a fine of $10,000 and up to two years in jail for not filing or filing false information. We won't know how lenient this law really is until at least 2025, but I don't want to try to talk my way out of this, much less pay fines of $500 per day for noncompliance.
Corporate Transparency Act Exemptions
Yes! There are lots of exemptions in the Corporate Transparency Act. The most notable one is being a “large operating company.” If the company has at least 20 full-time (30 hours+ per week) employees and at least $5 million in revenue, you don't have to file. However, there are plenty of other exemptions, including:
Be careful with the “inactive entity” exception. If the company has done any business in the last 12 months, you still likely need to file. Most small businesses are going to need to do this—including corporations; LLCs; and, if registered with the state, sole proprietorships. I couldn't remember if my sole proprietorship was registered with the state, so I registered it with FinCEN just in case. As far as I can tell, there's no harm in registering a company that is exempt, so when in doubt, report.
Corporate Transparency Act Reporting Requirements
You'll need the following information to report your company:
- Company name
- Any trade names
- Company address
- Company Employer Identification Number (EIN)
- Identifying information for company applicant(s) (name, address, birth date, driver's license) if formed after January 1, 2024
- Identifying information for all beneficial owners (name, address, birth date, driver's license)
More information here:
A Step-by-Step Guide to Starting a Medical Practice
What If I Still Have Questions?
FinCEN has a nice FAQ page and has put out a small entity compliance guide that is very helpful.
How Do I Report My Company?
Want someone to walk you through the process of reporting? No problem. I took some screenshots as I did it.
First, go to https://boiefiling.fincen.gov/boir/html
Click box 1a for Initial Report and hit Next.
That will take you to the reporting company tab.
If you're reporting dozens of companies, it might be worth getting FinCEN IDs for the company and the beneficial owners. I decided I didn't own enough companies for that to be worth the hassle. Type in the legal name and trade name of the company and scroll down.
Put in your EIN, select the USA and your state, and then put in the company address. Easy peasy.
Hit Next, and you'll move to the company applicants tab. I didn't read the directions very well. Since all our companies were formed before 2024, we didn't actually have to fill out this part. Company applicants are 1-2 people who registered the company with the state. I can't really remember, but I'm pretty sure I signed off on all of them so I just put my name down for each company. Here's what I should have done:
Click Box 16 saying the company was in existence already on January 1, 2024. The information you supply for company applicants is exactly the same as what you put down in the next section: the beneficial owners section. You do this once for each beneficial owner. If there is more than one, just hit the Add Beneficial Owner button after you complete each one.
Again, I didn't bother with getting a FinCEN ID for any of our owners. Scroll down and you'll put in the name, birth date, address, driver's license number, and image for each owner.
Hit Next to go to the last tab. Enter your email address twice, type in your name again, and solve a CAPTCHA to prove you're human.
Frankly, the CAPTCHA is the hardest part of the whole thing. Download your confirmation transcript somewhere safe, and you're done!
The Corporate Transparency Act is a bit of a pain to comply with, but at least it's free and easy to do.
What do you think? Have you registered your companies yet? How did it go? Were there any surprises for you?
I cannot seem to get an answer from anyone for this question; does anyone know? For “company address”, is that where the PLLC (LLC) is registered (also happens to be our home address, but not the physical location of our business(es)), where the majority of the business is transacted, where the majority of the employees are located? Not surprisingly, the government did not give me any helpful information when I reached out…
I’d just use the registered address and not worry about it.
Question about sole proprietorship:
My husband started his EIN in 2019 or 2020 I think. He has an EIN number. He does Project Management for retail consulting companies. DOes he need to register this?
Thanks
Did he register the business with the Secretary of State or similar in your state? If not, then no. See the chart in the article above. Just using an EIN doesn’t seem to require you to register with FINCEN.
As I understand it there is ongoing litigation challenging the constitutionality of the CTA (thus far successful) – should entities delay filing until this is resolved, or proceed regardless?
I wouldn’t wait longer than the end of this year. If you don’t do it now, be sure to put a reminder in your phone to do it later.
From the website’s FAQ page it looks like a sole proprietorship (even one that has an EIN) is not required to report.
Is this correct? I am trying to figure out if we need to report our sole proprietorships that have EINs. Mine didn’t even make any money this year.
“Its purpose is to prevent nefarious individuals from hiding their illicit activities behind shell corporations and LLCs.”
For you to regurgitate this without providing opposing potential purposes (which are clear with those that have followed the legislation government has continuously introduced and attempted to pass that severely impacts small businesses) is short sided, at best, in my opinion. All this information is already provided to start a small business. You should read the details of what they are able to do without any kind of proof.
Sounds a little conspiracy theoryish, but please enlighten us as to the “opposing potential purposes” of this legislation.
I tried to educate myself on the nefarious undertones of this legislation. The American Bar Assoc. has a well-written piece. https://www.americanbar.org/groups/business_law/resources/business-law-today/2023-july/the-corporate-transparency-act-deniers-beware/
This was vetoed by the former president in his last months in office and then passed by a 2/3 majority of both houses, so we’re talking about real bipartisan work.
I have a “sole proprietorship” with EIN—was just for consulting income, doing medical surveys…..didn’t even make any money for it for 2023 as I have a very busy W2 job now.
Do I need to register this?
Not if you never registered it with your state.
Not sure if I registered with the state…….is this something I would have remembered? How can I figure this out.
It would take longer to figure it out than to just register. I just registered my sole proprietorship. No big deal even if I didn’t have to.
This seems like yet another instance of gross government overreach. But thank you for bringing it up. I was unaware of this and now I have to learn more about it.
Just knocked this out in 10 minutes. Thanks for the step-by-step!
Our pleasure.
I have already completed FinCEN for my California S Corp. However, after completing this, I registered my corporation in the state of Washington after this (Same EIN). Do I need to register again or do some additional registration because of this or am I done since I’m registered, and this is a federal registration?
I don’t think you do because it’s a federal thing.
Corporate Direct is charging $250/LLC to do this for me. We have 5 LLCs, so this is kind of expensive. Do you think that I should just do it myself?
Thanks,
Kevin
I didn’t think it was very hard so I guess, yea. If you have a problem, you can quit and go get help.
I filed it the same way you did back in the spring. I did download the transcript but were we supposed to get a copy of it or confirmation via email? I can’t seem to find any correspondence from BOI or fincen after it was filed. Not sure if I accidentally deleted the email awhile back. Should I be worried if I have just a transcript?
I wouldn’t be worried if I did it as discussed in this post, no.
If a person residing in a community property state (i.e. California) owns 100% of a reporting company, would the individual’s spouse also be considered a beneficial owner simply because they are a spouse? Does the spouse need to be listed as a beneficial owner when filing with the FinCEN?
Don’t know. But I do know it’s VERY easy to register an additional beneficial owner and there doesn’t seem to be much downside to being a little too comprehensive.
I’m having a big issue here. Just got married and decided to change my name which is different from what’s stated in the businesses since the process is so slow. I do have my SS card and DL already with the new name but, again, the business is registered under my maiden name and the website doesn’t ask for any of that that I can find. Could anyone help me with that?
Good question, not sure I know the answer. But see page 45 of this:
https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
The following are some examples of changes that would require an updated BOI report:
• Any change to the information reported for the reporting company, such as registering a
new DBA.
• A change in beneficial owners, such as a new Chief Executive Officer, a sale that
changes who meets the ownership interest threshold of 25 percent, or the death of a
beneficial owner.
Note: When a beneficial owner dies, resulting in changes to the reporting company’s
beneficial owners, report those changes within 30 days of when the deceased beneficial
owner’s estate is settled. The updated report should, to the extent appropriate, identify
any new beneficial owners.
• Any change to a beneficial owner’s name, address, or unique identifying number
provided in a BOI report.
Note: If a beneficial owner obtained a new driver’s license or other identifying document
that includes the changed name, address, or identifying number, the reporting company
also would have to file an updated beneficial ownership information report with FinCEN,
including an image of the new identifying document.
So it sounds like you can just update it later.
Thank you for this awesome blog and the reminder on your recent podcast to get this done!
You’re welcome.
When I went to fill out the BOI registration I noticed that this act is under current legal action. From what I can see this reporting is currently optional. See below.
Jim thanks for all you do. Continued prayers for recovery and healing in 2025.
“BOI e-Filing Alert: Please note that beneficial ownership information reporting requirements have been affected by a recent federal court order. The Department of the Treasury is appealing that order. In the meantime, reporting companies are not currently required to file a BOIR and are not subject to liability if they fail to do so while the applicable order remains in force.
However, reporting companies may still opt to file a BOIR.
More information is available on our website (https://www.fincen.gov/boi).”
That’s correct. Subject to change at any time. So if you choose not to report now, be prepared to do so on short notice depending on court action you may or may not hear about in time. Seems easier to report than to follow the news on this closely, but it’s your call.