New Compliance Filing Requirement for Business Owners

New Compliance Filing Requirement for Business Owners

Beginning January 1, 2024, new and existing business owners will have to file documents called Beneficial Ownership Information with the Financial Crimes Enforcement Network (“FinCEN”). The federal government is looking to crack down on the use of shell companies to hide criminal activities, resulting in the Corporate Transparency Act, Because a large amount of money is laundered through shell companies, dummy corporations, and off-shore accounts, most businesses, including small businesses, will have to report who their owners and senior officers are to FinCEN when they are registered or when material changes are made.

Who has to report and when? Aside from a list of certain kinds of companies (generally in the financial services sector), all limited liability companies, corporations, or any other company created by filing a registration with a state must generally report. Other than the financial services sector (governed by other laws), the one significant industry area that may not have to report is non-profit entities (but there are some exceptions). Entities that existed before January 1, 2024, must report no later than January 1, 2025. Entities formed in 2024 must report within 90 days of registration with the state. Entities created on January 1, 2025, or later must report within 30 days of registration.

What must be reported? FinCEN and the Corporate Transparency Act (CTA) require each company to identify its beneficial owners. A beneficial owner:

  • Exercises substantial control over the company
  • OR
  • Owns 25 percent or more of the ownership interests of the company.

Substantial control is not just limited to actual owners but can include senior employees, members of the Board of Directors, or someone who has significant influence over the business, finances, or structure of the company. So, in a way, the term Beneficial Owners Information is a misnomer since control of a business or a significant aspect of the business can be exercised by non-owners.

Investors may also have to be reported if they hold certain kinds of securities, like a convertible note, that, if exercised, would give them either ownership or substantial control over the company.

The company must report its name, any trade names (DBAs), principal place of business, state of registration, and EIN. Individuals must provide full legal name, date of birth, residential address, and copy of government-issued ID, such as a driver’s license, passport, or something similar.

At this time, entities that were registered before 2024 can take their time, but new entities need to be on the ball. There are requirements for new entities that have to be addressed at the time they register with the state.

For more information or to have a conversation about your reporting requirements to FinCEN, please schedule a 30-minute consultation with us.