A new reporting requirement under the Corporate Transparency Act (effective January 1, 2024) requires companies created or conducting business in the US to provide information on its “Beneficial Owners” to the Financial Crimes Enforcement Network (FinCEN).
Who Needs to Report?
- Reporting Companies: If you have a corporation, limited liability company, or a similar entity created or registered in the US by filing a document with the secretary of state or a similar office under a state law, you are likely required to report. There are 23 types of entities exempted, including inactive entities, large operating companies with gross receipts over $5M, accounting firms, highly regulated firms such as banks, broker-dealers, pooled investment vehicles, and insurance companies, so it’s crucial to check if you fall into one of these categories.
Identifying Beneficial Owners
- Definition: A beneficial owner is someone with “substantial control” over your company or who owns or controls at least 25% of the company’s ownership interests.
- Indicators of Control: This includes senior officers (like CEOs or CFOs), individuals who can appoint or remove senior officers or board members, and those who significantly influence your company’s key decisions.
What Information to Report?
- For Your Company: You’ll need to provide the company’s full legal and trade names, the principal place of business address, jurisdiction of formation or registration, and a Taxpayer Identification Number (TIN) or a foreign tax ID.
- For Beneficial Owners: Report their full legal name, date of birth, current residential or business address, a unique ID number from a government-issued photo ID, and an image of this ID.
- For Company Applicants: If your company will be created or registered after January 1, 2024, you will need to identify up to two individuals involved in the filing process and provide the same details as for beneficial owners.
FinCEN Identifier Option
- Simplification: Instead of providing all the above details, you can opt for a FinCEN identifier for your company, beneficial owners, and company applicants.
Filing the Report
- Timeline: If your company existed before January 1, 2024, you will need to report by January 1, 2025. If established after January 1, 2024, you will need to report within 30 days of creation or registration.
- Updating Information: Changes in the reported details need to be updated within one year.
- Inadvertent Errors: Any inadvertent errors can be corrected within a 90-day safe harbor period.
- How to File: Use the FinCEN’s BOSS system, available from January 1, 2024.
Penalties for Non-Compliance
- Severe Consequences: Failing to report or knowingly providing false information can lead to a daily fine of $500, up to $10,000 in fines, two years in prison, or both.
Recommendations
Given the complexity and newness of these requirements, reach out to Shaheen Sheik-Sadhel (shaheen@mitzelgroup.com), of our Corporate Team, and we can walk you through whether you are required to report and who might be Beneficial Owners in your organization.
