By Meredith A. Fine, Esq.

More than 30 million American small businesses must start disclosing to the federal government who owns their companies. Is yours one of them?

Starting Jan. 1, 2024, certain corporations and limited liability companies must file a Beneficial Ownership Information form with the U.S. Department of Treasury. The penalties for purposely failing to comply are severe: $500 a day, a $10,000 fine, and/or two years in prison.

The federal Corporate Transparency Act was passed to fight terrorism and money laundering. It does not apply to sole proprietors, industries that are already well-regulated, such as banking and insurance, or to charitable organizations. There are also other exceptions that can be found at fincen.gov/boi.

The Act does apply to the following:

• Businesses that were created by filing as a corporation or an LLC with the Massachusets Secretary of State;
• Businesses with fewer than 20 full-time employees, with full-time defined as working at least 30 hours per week; and
• Businesses with gross revenues of less than $5 million.

If your business qualifies, you must tell the federal government who owns and who controls your business. Sometimes, as with a single-member LLC, defining the “beneficial owner” of the company is simple. Sometimes, the answer is less simple.

A “beneficial owner” is someone who either owns at least 25% of the business or has “substantial control.” Persons having substantial control include senior officers, anyone with the authority to make major decisions, or any other form of direct or indirect substantial control. A person’s title does not matter; the Treasury Department wants to know who is actually running the company.

For example, if multiple family members own at least 25% of a corporation plus the founder of the business still does the hiring, all of these people should be disclosed. Another example is businesses that are controlled by estate-planning trusts. Sometimes, it is not clear who has the authority to make major decisions if a trust is involved. The answer may require a detailed analysis of the company’s bylaws and other legal documents.  

Any changes to the beneficial ownership must be reported. If the company president is disclosed as someone with substantial control and she moves to a new home, that new address must be disclosed. If a minor has an ownership interest that ripens when he hits 18, that milestone must be disclosed. If a corporation sells more than 25% of its stock to a new partner, that partner must be disclosed.

The Treasury Department is giving us plenty of me to comply. If the business was created before Jan. 1, 2024, you have all of 2024 to file your Beneficial Ownership Information form. If your business is created sometime in 2024, you have 90 calendar days from filing with the Secretary of State. After January 1, 2025, you have 30 calendar days after creating the corporate entity to file your Beneficial Ownership Information form.

This is merely a broad overview of the Corporate Transparency Act. More details can be found in the Small Entity Compliance Guide published by the Treasury Department. In addition, some questions remain to be answered. There is no provision for extensions, for instance. 

If you think this new law might apply to you, I suggest contacting your attorney or accountant as soon as possible. A mistake could be expensive. 

Meredith A. Fine, Esq., owns Cape Ann Business Law P.C. and has offices in Gloucester and Ipswich. Her website is www.capeannlegal.com. She is the general counsel for the Greater Cape Ann Chamber of Commerce.