A new reporting requirement for businesses, The Corporate Transparency Act, is officially in place with the potential for very high penalties. Do not ignore this legislative change—meet with your legal advisors as soon as possible to develop an action plan for the Beneficial Owner Information Reporting.
This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. The burdensome reporting requirement will affect most businesses.
Beneficial Owner Information Reporting, Deadlines, and Timing
Starting January 1, 2024 newly formed corporations, limited liability companies (LLCs), limited partnerships, and other entities that file formation papers with a state’s Secretary of State’s office (or similar government agency) must file a report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) providing specified information regarding the entity’s “beneficial owners.”
- Entities in existence prior to January 1, 2024 have until January 1, 2025 to file these reports.
- Entities formed in 2024 will have 90 days from the entity’s formation/registration to file these reports.
What is a “Beneficial Owner”?
Beneficial owners are broadly defined and involve owners who directly or indirectly own more than 25% of the entity’s ownership interests or exercise substantial control over the reporting company (even if they don’t actually have an ownership interest).
While this may seem to only impact a few significant owners, it can encompass many. Including but not limited to:
- Senior officers of the businesses
- Individuals who are involved in any significant business decisions
- Board members
For entities formed after 2023, information will also have to be provided about the company applicants. Meaning, the person or people who actually file the formation/registration papers and the person primarily responsible for directing or controlling the filing of the documents.
Reporting of beneficial owners must include:
- The owner’s legal name
- Residential address
- Date of birth
- Unique identifier number from a nonexpired passport, driver’s license, or state identification card
- An image of any of these forms of documentation
Fines and Penalties
Willful failure to report information and timely update any changed information can result in significant fines of:
- Up to $500 per day until the violation is remedied, or
- If criminal charges are brought, fines of up to $10,000 and/or two years imprisonment.
These penalties can be imposed against:
- The beneficial owner
- The entity
- And/or the person completing the report
Submit Changes Within 30 Days
The entity must report information changes within 30 days of the change or face the potential of having the penalties described above imposed.
- Changes to Beneficial Owner which should be submitted to FinCEN include:
- Ownership interest sale or transfer
- Change of address
- Change of name
- New passport number when a passport is replaced or renewed
- Copy of a renewed driver’s license
Events which might require a reporting change:
- Death
- Divorce
- Gift
- Hire
- Termination
- Promotion
Which Companies Must Comply?
Any LP, LLC, or corporation with less than $5 million in revenue and fewer than 20 full-time employees.
How to Report to FinCEN
Submitting beneficial owner information is done per entity with a short form and attached copy of the identification document here on the FinCEN website. If you are a beneficial owner of many entities, you can receive a unique identifier to avoid submitting many times.
Given the severity of the fines, it may be safer to err on the side of overinclusion of beneficial owners rather than underinclusion.
Click here for more detail from FinCEN on definitions, who to include, fines, and more.
It’s important to develop a plan for your reporting. Meet with your legal advisors to discuss who might be treated as a beneficial owner in your business and what systems can be put in place to ensure that the information regarding these beneficial owners is kept current.
