Urgent Deadline Approaches: Small Businesses Could Face Heavy Penalties for Non-Compliance
Small business owners across the United States are under growing pressure to comply with a new reporting requirement that could result in hefty fines or even jail time if ignored. Under the Corporate Transparency Act (CTA), businesses must report beneficial ownership information (BOI) to the Treasury Department by January 1, 2025 — or risk being slapped with fines of $10,000 or more.
The new law is part of a broader effort to prevent financial crime and crack down on the use of shell companies for illicit activities. This law will affect an estimated 32.6 million businesses in the U.S. — including corporations, limited liability companies (LLCs), and other entities. If businesses fail to meet the deadline or provide false information, they could face penalties, including significant fines and potential jail time for willful violations.
What Is the Corporate Transparency Act?
The Corporate Transparency Act was passed as part of the National Defense Authorization Act in 2021. The goal of the legislation is clear: make it more difficult for bad actors to use anonymous companies to launder money, hide assets, or evade taxes. The law mandates that many businesses, especially smaller ones, provide detailed information about the individuals who own or control them — the so-called beneficial owners.
The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, is responsible for collecting this data. The report must include key details about the owners, such as their names, addresses, birth dates, and unique identification numbers (e.g., from a passport or driver’s license).
The Deadline: January 1, 2025
Business owners have just under a year to meet the compliance deadline. While this may sound like plenty of time, experts suggest that many business owners may not fully understand or even be aware of the new requirements. Additionally, because the reporting process is new and some businesses are still waiting for guidelines, there’s concern that many may miss the January 2025 deadline.
Failure to comply can result in serious financial penalties. Individuals who “willfully” fail to file or provide false information could face fines of up to $500 per day for every day they are out of compliance, plus a one-time fine of up to $10,000. For businesses, failure to comply could also lead to significant legal consequences, including potential jail time for the business owners in extreme cases.
Why Is the Corporate Transparency Act So Important?
The CTA is part of a broader U.S. government initiative to tackle financial crimes like money laundering, terrorism financing, and tax evasion. Previously, many business entities in the U.S. could be registered anonymously, meaning that criminal organizations could easily use shell companies to hide illicit financial activities.
By requiring businesses to disclose their beneficial owners — the individuals who ultimately control the company — the law is designed to make it more difficult for illicit actors to hide their true identities behind corporate structures.
The law applies to a wide range of businesses, though it does have exemptions. Larger companies and certain regulated entities such as banks, insurance firms, and investment advisors are not required to report their beneficial ownership information. However, small businesses, including most LLCs and corporations, are impacted by the new rules.
Are Small Businesses Ready for the Reporting Requirement?
According to federal estimates, around 32.6 million businesses will need to file the new reports. However, reports suggest that many businesses may still be in the dark about the CTA and its consequences. Despite the looming deadline, the U.S. Treasury Department has not yet disclosed how many businesses have actually filed their Beneficial Ownership Information Reports.
Small business owners are likely to face challenges as they navigate this new process. Many of them may be unaware of the law’s requirements or lack the administrative resources to gather and submit the necessary information. Additionally, some businesses may need time to consult legal and financial advisors to ensure they are in full compliance.
What Happens if Businesses Don’t Comply?
If a small business fails to file a BOI Report by the January 2025 deadline, it will be considered non-compliant, and the consequences can be severe. Fines of $500 per day can accumulate quickly, but willful violations (e.g., if the business owner knowingly fails to file) can lead to much steeper penalties — including a $10,000 fine and possible jail time.
For those who provide false information, the penalties could be even harsher, with both monetary fines and criminal charges.
To avoid these penalties, business owners must act quickly to gather the necessary information about their company’s beneficial owners and file the report with FinCEN before the deadline.
How to File Your Report
Businesses subject to the Corporate Transparency Act can file their Beneficial Ownership Information Report directly with FinCEN through an online portal. The portal is expected to be up and running before the reporting deadline.
The information required includes the names, addresses, dates of birth, and government identification numbers of the business’s beneficial owners. In some cases, additional details such as identification numbers from passports or other government-issued IDs will be necessary.
It is essential for business owners to gather this information as soon as possible and ensure that it is accurate. Any errors or omissions could lead to penalties or delays in processing.
What Can You Do Now?
Small business owners need to take action now to ensure they comply with the Corporate Transparency Act’s Beneficial Ownership Information reporting requirements. Here are a few steps they can take:
- Identify Beneficial Owners: Start gathering information about who owns or controls your business. This includes individuals with significant ownership stakes or those who have decision-making authority.
- Consult Professionals: If you’re unsure about the reporting requirements or need help with the process, it’s wise to consult with a legal or financial professional who can guide you through the steps.
- File Early: Don’t wait until the last minute to submit your report. The online portal should be available soon, and getting your report in early can help you avoid potential issues or delays.
- Stay Updated: Keep an eye on any changes or updates to the Corporate Transparency Act or reporting guidelines. The U.S. Treasury Department may release further instructions or clarifications as the deadline approaches.
Conclusion
The Corporate Transparency Act introduces an important new rule that all small businesses must follow to stay in compliance and avoid significant financial penalties. Fines of $10,000 or more can result from non-compliance, and the potential for jail time underscores the seriousness of the matter.
For business owners, this means acting now to gather the required beneficial ownership information and preparing to submit it before the January 1, 2025 deadline. The law aims to combat illegal activity by making it harder for shell companies to operate in the U.S., but it also places a heavy responsibility on small businesses to stay informed and compliant.
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.