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New Federal Reporting Requirements Could Hurt Small Businesses

The new guidelines require anyone who operates an LLC or partnership to register with a new federal database, which one Utah business owner believes will negatively impact small and local businesses.
Daniel+G.+Aaron%2C+associate+professor+of+law+at+the+University+of+Utah%2C+poses+for+a+photo+while+discussing+the+impact+of+a+new+LLC+law+that+requires+businesses+to+include+much+more+information+in+the+application+process+on+the+University+of+Utah+campus+in+Salt+Lake+City+on+Jan.+24%2C+2024.+%28Photo+by+Johnny+Morris+%7C+The+Daily+Utah+Chronicle%29
Johnny Morris
Daniel G. Aaron, associate professor of law at the University of Utah, poses for a photo while discussing the impact of a new LLC law that requires businesses to include much more information in the application process on the University of Utah campus in Salt Lake City on Jan. 24, 2024. (Photo by Johnny Morris | The Daily Utah Chronicle)

 

Beginning Jan. 1, 2024, all people who operate a small business, including LLCs and partnerships, are now required to register in a new federal database to identify criminals.

Each person who owns 25% or more of a small business is now required to enter, and update as needed, personal information into the database. This information includes name, home address, birth date, ID and photographed proof.

The Financial Crimes Enforcement Network, a government agency that formed and released these regulations, believes the personal information will help them catch thousands of criminals.

However, despite FinCEN’s assurance, many small business owners are worried that the regulations will place an undue burden on businesses that cannot afford to throw money at the additional task while letting larger businesses off the hook.

According to an article by the New York Times, these business owners say the regulations will be “complex” and even “unconstitutional.”

Scott Church, founder of Utah-based company Category One Games, explained in an email interview how the regulations may make operating a small business even more difficult than it already is.

“I worked in the accounting field for a while, and there is so much legislation and oversight that it is hard for most small accounting businesses to survive,” he said. “And the larger businesses can easily throw extra people and money at the problem with little impact.”

If businesses established before 2024 fail to register in the database by Jan. 1, 2025, they will incur penalties including fines of up to $500 per day and may face up to two years of imprisonment. Additionally, if the company does not report changes to the information within 30 days, they will face the same charges, which many small businesses cannot afford, especially when just starting out.

“Most times people look at the good that an update like this could do while not taking into account the negative impact it can have on legitimate businesses,” Church said. “The thought is, ‘They will just have to figure it out.’ The same illegal business organizations have many more resources at their disposal to ‘just figure it out’ than new businesses just trying to get started. This will keep some small businesses from never fully taking off.”

Church did not mention particulars on how these regulations affect his own business, but he emphasized the burden that will be placed on small companies that are simply trying to survive.

“I can see where the government is looking to prevent fraud and money laundering through these extra steps,” he said. “But it is just another hurdle for most people and another hoop for small businesses to jump through in just trying to survive and develop their business.”

Despite these concerns, Daniel Aaron, associate professor of law at the University of Utah, believes the regulations are an important and necessary step. Rather than being a burden, Aaron explained that the additional requirements would boost accountability and lead to a more equitable corporate setting.

“People have used shell companies for a variety of purposes, sometimes in ways that skirt the law,” he said. “This is an attempt to hold those companies and people who run them or control them accountable. It’s a significant step.”

In response to questions about how these requirements may affect people who are trying to start a business, Aaron said there shouldn’t be too much to worry about. He said the regulation will likely not act as a barrier to budding entrepreneurs.

“I don’t think this should be a barrier,” he said. “I just think this will add an additional submission of information when making a corporation.”

 

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About the Contributors
Jamie Faux, News Writer
(she/her) Jamie Faux began as a news reporter at the Daily Utah Chronicle in the summer of 2023. She is a double major in English and finance at the University of Utah with the goal of becoming an author after graduation. Jamie grew up in Provo and enjoys outdoor sports, reading, and traveling.
Johnny Morris, Photographer
Johnny Morris began his photojournalism career in 2015 at the Utah Statesman, followed by the UVU Review and then freelancing for the Daily Herald. He received an undergraduate degree in Communications with an emphasis in Journalism from UVU, where he was the Photo Editor and later the News Editor at the UVU Review. His academic career continued at the Salt Institute for Documentary Studies at Maine College of Art. He's now pursuing a M.Ed in Special Education and works as a Special Education teacher in his hometown of American Fork, Utah.

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