It is no secret that unscrupulous actors often use “shell companies” and other devices to hide their true identities from tax and financial regulators. Even folks acting completely above board may use some of those devices as a way to conceal their identities from the public for perfectly legitimate reasons.
However, federal regulators have a powerful new tool to combat money laundering and other financial crimes. Under the Corporate Transparency Act, businesses operating in the United States must report their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”), an agency of the U.S. Department of the Treasury, beginning in 2024.
What is a beneficial owner?
A beneficial owner is a person who ultimately owns or otherwise substantially controls a business entity. Requiring businesses to reveal their beneficial owners to regulators, rather than concealing them through various structures, makes it more difficult to avoid accountability.
In short, if you own at least 25% of a business or can exercise “substantial control” over a “reporting company” (see below), you are a beneficial owner for purposes of the Corporate Transparency Act.
“Substantial control” means you are a senior officer, can appoint or remove officers, are an important decision maker, or have any other form of substantial control.
Third-party agents, such as outside accountants and lawyers, are not beneficial owners because they act only in a consulting capacity. However, an in-house chief financial officer or general counsel would be a beneficial owner as someone who can exercise “substantial control.”
Will my business entity have to report its information?
If you own a business that was formed in the United States (such as a limited liability company, corporation, or nonprofit), your entity is a “reporting company” under the law. In other words, your entity will have a reporting requirement.
If you own a business that was formed outside of the United States, but is registered to do business in the United States, your entity is also a “reporting company.”
Certain types of entities are exempt from the requirement to report its beneficial owners under the Corporate Transparency Act. Exempt entities are primarily in the financial services industry and other publicly traded companies meeting certain requirements. (See the Beneficial Ownership Information Reporting FAQs for the full list.) These entities are exempt under the Corporate Transparency Act because they are already subject to various other disclosure requirements.
What information will my entity need to report?
A “reporting company” formed prior to 2024 will need to report information about itself and its beneficial owners.
A “reporting company” formed on or after January 1, 2024, will need to report information about itself, its beneficial owners, and its “company applicants.”
A “company applicant” is someone involved with directly filing the entity registration documents. For instance, if I filed the Articles of Organization for your new limited liability company (LLC) on your behalf with the appropriate agency in your state, I would be the company applicant.
Entity information: legal name, trade name(s), address, jurisdiction of formation, federal tax identification number, and type of report (initial or updated).
Beneficial owner information: name, date of birth, address, identification number from an acceptable identification document (passport, driver license, or state identification document).
Company applicant: same as beneficial owner.
Do I need to provide all my personal information to every entity for which I am a beneficial owner or company applicant?
Yes, unless you obtain a FinCEN identifier.
If you will be listed on the beneficial ownership information reports of multiple entities, you may wish to obtain a FinCEN identifier by providing the required information to FinCEN separately. You will then receive a FinCEN identification number unique to you. Reporting companies can use the FinCEN identifier in place of the information otherwise required for that individual on its beneficial ownership information report.
When does my entity need to file its initial report?
A “reporting company” formed prior to 2024 has until January 1, 2025 to file its initial report.
A “reporting company” formed on or after January 1, 2024, will have thirty days after its effective date of registration to file its initial report.
You cannot file your beneficial ownership information report yet. FinCEN will not begin accepting such reports until January 1, 2024.
Do I need to file periodic or updated reports?
There are no additional filing requirements once you file your beneficial ownership information report.
However, if you discover an error or any of the information changes—for either the entity itself or any other beneficial owners—you must file a corrected or updated report within thirty days.
How do I actually file the report? Do I have to pay a fee?
Beneficial ownership information reports will be filed electronically via the FinCEN website. There will be no fee to file the report.
Will this information be public?
No.
Beneficial ownership information reports will only be available to government officials for national security, intelligence, and law enforcement purposes. Unlike the information on your entity formation documents (such as your Articles of Organization), the reports are not public.
Can someone else do this for me?
Absolutely!
I assist many individuals with forming and running their businesses. For my current clients, I will file their beneficial ownership information reports when completing their 2023 tax returns. This will meet the end-of-the-year deadline with no extra effort on their part. I will also obtain FinCEN identifiers for folks, including myself, that will be listed on multiple reports.
In the new year, I will incorporate (pun intended!) filing the beneficial ownership information report into my entity formation services.
Be aware of scammers attempting to solicit information from you to file the beneficial ownership information reports on your behalf. Only work with someone you already know and trust!
In short, if you already work with us, you do not need to worry about the new reporting requirement because we will handle it on your behalf. If you do not already work with us, feel free to reach out.
Where can I go for more information?
The FinCEN website has all the details you need on the new reporting requirements, including a Frequently Asked Questions section and a Small Entity Compliance Guide.
While it sounds ominous, the new reporting requirement is a minimal burden on business owners. More importantly, it is a positive step forward in combating financial crime.
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