Don’t Get Caught Unaware by this New Federal Reporting Requirement

A new year brings new laws that may affect your creative business. This year, there is one big change that virtually all small creative businesses need to be aware of: the Beneficial Owner Information reporting requirement.

Each state has its own laws, so I can’t really speak to those (except for California)—please do check into your local rules to see if there are any important changes in your state. 

The Beneficial Owner Information reporting requirement, which is new for 2024, relates to a law passed a few years ago (the Corporate Transparency Act) that was designed in part to help protect against money laundering and the like by essentially fake small businesses. In short, the federal government is requiring most small businesses to file a one-time (unless something changes later) report regarding who owns and/or controls the business. 

Determining which businesses qualify for the reporting, which are exempt, and which people connected with those businesses need to be named can be a bit confusing. Roughly speaking, if you have an entity—LLC, corp (S or C), or any other entity that required a filing with your state, and you have fewer than 20 employees, you will probably have to file. If you are a sole proprietor, you may also have to file if you have filed something with your state or local government relating to that business—like a fictitious name filing. 

As for who would be named as a beneficial owner, the easy one is, probably, you. You own more than 25% of your business or you control the operations of the business—you get named. But you would also have to name anyone else who owns 25% or more of the business, even if that partner is silent. Or, you’d have to name an officer, even if the officer has no actual ownership of the business.

So, for example, let’s say your creative business is an S-Corp that you own most of and that you control, but your spouse, who has no say in the running of the business, owns 30% of the business/its stock (by the way, in community property states, your partner may own 50% whether you know it or not); you have no employees other than yourself. You’d have to file a report for that business and include that other person as a beneficial owner, as well as yourself, on your report. 

See, the details can get a bit weird. For example, if you had someone do your filing with the state, like an administrative assistant, you may have to report that person, but in a slightly different manner. Maybe. Like I said, the details get weird.

The good news is that if your business was already in existence before January 1, 2024, you can file now but you have a whole year to do your initial reporting (please don’t leave it to the last minute!). If you start a business or convert yours from a sole prop to, say, an LLC any time after January 1, 2024, you have to do your filing within 30 days. You also need to file within 30 days if you make any changes to your business after your initial filing. 

You can read up on it yourself on the government’s website, especially the FAQ here: https://www.fincen.gov/boi-faqs. However, since there are hefty penalties for non-compliance, I suggest hiring an attorney or CPA (preferable the former, in my opinion) to help you with this.