Starting January 1, 2024, most businesses will be required to begin reporting information about their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Department of the Treasury. FinCEN established this beneficial ownership information reporting requirement pursuant to the Corporate Transparency Act. The requirement is designed to prevent criminal actors from hiding and moving their illicit proceeds through anonymous shell companies. If your business is a corporation or limited liability company (“LLC”), you may be required to report your beneficial ownership information to FinCEN. To help you further understand your potential future obligations, below are a few common questions and answers:
Will my business be subject to the reporting requirement?
A corporation or LLC that is formed in the United States, or an entity that is formed in a foreign country but conducts business in the United States, is subject to the reporting requirement. Several types of entities are expressly excluded from the reporting requirement, such as banks, 501(c)(3)s, investment companies, insurance companies, accounting firms, and large operating companies. A “large operating company” is any entity that: (1) employs more than 20 full-time employees in the United States; (2) has an operating presence at a physical office within the United States; and (3) filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipt or sales. In general, the entities excluded are already required to report similar information pursuant to other regulations.
What information will I be required to report?
The initial report must contain the following: (1) entity name; (2) any trade name or “doing business as” name; (3) entity address; (4) the jurisdiction in which the entity was formed (domestic reporting company) or first registered (foreign reporting company); and (5) its Taxpayer Identification Number. Regarding the beneficial owners, the initial report must contain the following: (1) legal name; (2) birthdate; (3) address; (4) an identifying number from a driver’s license, passport, or other approved document; and (5) an image of the document that contains the identifying number.
Who are the beneficial owners of my business?
The beneficial owners are those individuals who, directly or indirectly, either exercise substantial control over the business or own or control at least 25% of the ownership interests of the business. An individual exercises substantial control if the individual: (1) serves as a senior officer of the reporting company; (2) has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body) of the reporting company; or (3) directs, determines, or has substantial influence over important decisions made by the reporting company (such as participation on the board of directors). What constitutes an “ownership interest” is broad – ranging from actual equity of the entity to the option or right to obtain equity of the entity.
When will I be required to file my initial report?
- If the entity is in existence prior to January 1, 2024, the reporting deadline is January 1, 2025.
- For an entity formed on or after January 1, 2024, the reporting deadline is 30 days after formation.
- Though a sample of the form is not yet available, FinCEN has indicated that it will accept reports electronically.
What if I have more questions regarding the reporting requirement?
Compliance with the Corporate Transparency Act reporting requirement, which is both complex and extensive, presents a new challenge for businesses. The attorneys at Dvorak Law Group are available to help you meet this challenge, by properly advising you on the reporting requirement and whether it is applicable to your business. We have significant experience with regulatory compliance and are prepared to provide analysis to your business’s facts and circumstances. Please contact a member of our team if you have any questions.