Beneficial Ownership Reporting: What Companies Need to Know
Starting January 1, 2024, many companies will be required to report information to the U.S. government about who ultimately owns and controls them.
Beneficial ownership reporting is a new rule issued by the Financial Crimes Enforcement Network (FinCEN). It required business owners to provide personal identifiable information.
Here’s what you need to know to ensure your company is in compliance.
What is beneficial ownership reporting?
Beneficial ownership information reporting requirements stem from the Corporate Transparency Act (CTA), part of the Anti-Money Laundering Act of 2020.
While this legislation has been around for a few years, FinCEN, a bureau within the U.S. Treasury Department, recently issued a final rule establishing the beneficial ownership information reporting requirements, which take effect on January 1, 2024.
What is the timeframe for beneficial ownership reporting?
Companies created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial beneficial ownership report.
Companies created or registered after January 1, 2024, have 90 days to file a beneficial ownership report. That 90-day window starts when the company receives notice from the secretary of state or another office that its creation or registration is effective.
What companies will be required to report beneficial ownership information to FinCEN?
There are two types of reporting companies:
- Domestic companies formed in the United States.
- Foreign companies formed under the law of a foreign country that have registered to do business in the United States.
There are also 23 types of entities that are exempt from the reporting requirements.
Who is a beneficial owner of a reporting company?
A beneficial owner is an individual who either directly or indirectly:
- Exercises substantial control over the reporting company, or
- Owns or controls at least 25% of the reporting company’s ownership interests.
What is substantial control?
Individuals can exercise substantial control over a reporting company in four ways. If the individual falls into any of the categories below, the individual is exercising substantial control:
1. The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function).
2. The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
3. The individual is an important decision-maker for the reporting company.
4. The individual has any other form of substantial control over the reporting company, as explained further in FinCEN’s Small Entity Compliance Guide.
What Information Will a Reporting Company Have to Report About Itself?
A reporting company will have to report:
- Its legal name;
- Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
- The current street address of its principal place of business if that address is in the United States or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States;
- Its jurisdiction of formation or registration; and
- Its Taxpayer Identification Number.
What information will a reporting company have to report about its beneficial owners?
For each individual who is a beneficial owner, a reporting company will have to provide:
- The individual’s name;
- Date of birth;
- Residential address, and
- An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the issuing state’s name or jurisdiction of the identification document.
What are the penalties for non-compliance?
Businesses not complying with beneficial ownership information reporting requirements can face stiff penalties.
Any company that fails to file a required beneficial ownership report or amendment by its filing deadline is subject to a fine of $500 per day, up to a maximum of $10,000.
Willful failures or intentionally filing inaccurate information are felony crimes, punishable by up to two years in prison. When combined with anti-money laundering violations, the penalty is up to 10 years in prison.
Next steps
This is not an exhaustive list of information required under the Corporate Transparency Act. You can find more information at https://www.fincen.gov/boi.
Should you have any questions concerning your obligations or wish for our firm to file your Beneficial Ownership Report on your behalf, please contact attorney Katie Wood, Esq from the AC Law team at katie@business-esq.com.