Most small business owners will have to give the federal government more personal info in 2024

UPDATE (3/4/2024): A federal judge in Alabama has ruled that the Treasury Department cannot require small businesses to report details on their owners and other people who benefit from the business. The judge ruled on March 1 that the Corporate Transparency Act is unconstitutional because Congress exceeded its powers in enacting the law — and so any rules stemming from it are unlawful. The story continues as originally published below:

There are more than 33 million small businesses in the United States that employ nearly 62 million Americans, according to the Small Businesses Administration.

A viral video shared on Facebook claims a new law is “surveilling” small businesses by requiring them to submit new personal information to the federal government beginning Jan. 1, 2024, or face fines of $500 per day if they do not comply. 

The post claims this law requires small businesses to be registered in a federal database and allows the government to keep track of company executives’ and owners’ personal information, including their addresses. 

VERIFY reader Marsha sent us the video and asked if that’s true. 

THE QUESTION

Will most small business owners have to give the federal government more personal information starting in 2024?

THE SOURCES

• Corporate Transparency Act
• Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department
• FinCEN final rule published on Sept. 30, 2022
• BakerHostetler, a law firm that advises U.S. businesses
• Comply Advantage, a regulatory technology company

THE ANSWER

Yes, most small business owners will have to give the federal government more personal information starting in 2024.

WHAT WE FOUND

Beginning Jan. 1, 2024, most small businesses will be required to report new information to the federal government. Existing companies will have one year to report this information.

Congress passed the Corporate Transparency Act in 2021. It requires companies to submit what are called beneficial ownership information (BOI) reports to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

These reports must disclose details about the company, such as its name, address and taxpayer identification number, as well as personal information about its “beneficial owners” and in some cases its “applicants,” BakerHostetler, a law firm that advises U.S. businesses, explains.

The new reporting requirements are part of the government’s “efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures,” FinCEN says. 

But some groups like the National Federation of Independent Businesses (NFIB) say the new requirements are an added burden for small business owners.  

We VERIFY what small business owners need to know about the new reporting requirements.

Which companies are subject to the new reporting requirements?

The new requirements apply to corporations, limited liability companies (LLCs), or any other entities created by filing a document with a secretary of state or similar office.

This includes C-corporations, S-corporations, domestic and foreign LLCs, general partnerships, limited partnerships, and business trusts, regulatory technology company Comply Advantage explains. 

FinCEN estimates that 32.6 million companies will be subject to the new reporting requirements in the first year.

Who is considered a beneficial owner?

A beneficial owner is anyone who “directly or indirectly exercises substantial control” over the company, or a person who “owns or controls at least 25%” of the company’s ownership interests, FinCEN says.

Examples of beneficial owners are included in Chapter 2.3 of FinCEN’s Small Entity Compliance Guide. 

Who is considered an applicant? 

Applicants can include a maximum of two people: the person who directly files the formation or registration document of the company, and the person who is primarily responsible for directing or controlling the filing. 

Companies that are created or registered on or after Jan. 1, 2024, will need to report information about their applicants as well as their beneficial owners, FinCEN explains. 

Companies created before Jan. 1, 2024, do not have to report their applicants. 

What information do businesses have to report about their owners and executives?

Companies will typically have to provide beneficial owners’ and applicants’ residential addresses, as well as other information, in their reports, according to FinCEN.

The additional information includes the person’s full legal name, their date of birth, a passport or driver’s license number, and a photocopy of that documentation. 

Will businesses who don’t comply with the new requirements be fined $500 per day?

Business owners who willfully fail to report complete or updated information to FinCEN could face civil or criminal penalties. This also goes for people who willfully provide false or fraudulent information.

The civil penalties include a fine up to $500 for each day that the violation continues, and the criminal penalties include imprisonment for up to two years and/or a fine of $10,000.

Is the information that companies report stored in a federal database?

The beneficial ownership information that businesses report to FinCEN will be stored in a database. But that information won’t be publicly available, according to FinCEN and BakerHostetler. 

FinCEN says it will allow federal, state, local and tribal officials, and certain foreign officials who submit requests to the U.S. government, to obtain this information for “authorized activities related to national security, intelligence and law enforcement.”

Financial institutions will also have access to this information with the company’s consent in certain cases, according to FinCEN.  

What are the deadlines for companies that are required to submit these reports?

Companies registered to do business before Jan. 1, 2024, will have until Jan. 1, 2025, to file their official BOI reports, according to FinCEN. 

Right now, companies that are created or registered on or after Jan. 1, 2024, will be required to file their initial reports within 30 days after their formation. In September, FinCEN proposed extending the deadline to 90 days for companies that form in 2024, but this change hasn’t been finalized.

The form to report beneficial ownership information isn’t available yet. BakerHostetler says the reports are expected to be filed through an online interface similar to the Securities and Exchange Commission’s EDGAR system. 

There aren’t annual or quarterly filing requirements after the initial report is filed, according to BakerHostetler. However, companies need to file amendments no later than 30 days after any change to their reported information.

Are any companies exempt from the federal requirements? 

Twenty-three types of companies, including those that are publicly traded and meet certain requirements, many nonprofits and certain large companies, are exempt from the new reporting requirements, according to FinCEN. 

The exempt companies include banks, credit unions, venture capital fund advisers, insurance companies, accounting firms, public utilities, tax-exempt entities and large operating companies.

Large operating companies are defined as those with more than 20 full-time employees, an operating presence at a physical office within the United States, and a filed income tax or information return for the previous year showing more than $5 million in gross receipts or sales. 

A full list of the types of exempt companies is available on FinCEN’s website.