There is a new reporting requirement in effect for businesses starting in 2024. As part of the Anti-Money Laundering Act that was signed into law in 2020, businesses must comply with the Beneficial Ownership Reporting requirements as of January 1, 2024.
What is Beneficial Ownership Reporting?
Beneficial Ownership Reporting is a new reporting requirement that ensures transparency regarding the ownership or influence of individuals and entities over business interests in the United States. The intention is to make it more difficult to obfuscate or intentionally conceal the identities of those who control business entities in an effort to prevent money laundering.
What does this mean for you as a business owner?
Starting on January 1, 2024, if you are an owner of a Domestic Reporting Company or a Foreign Reporting Company, you can begin filing with FinCEN, the Financial Crimes Enforcement Network. A secure site has been developed for this purpose. If your business was created or registered to do business before January 1, 2024, your initial filing deadline is January 1, 2025. If your business is created or registered after January 1, 2024, you have 90 days from notification of effective registration to complete your initial report. The notification of effective registration will come from either your secretary of state or another governmental office.
How do I know if I am required to report?
Domestic Reporting Companies and Foreign Reporting Companies are included in this new reporting requirement for businesses. A Domestic Reporting Company is a corporation, limited liability company, or other entity that is created by filing an application with the secretary of state or comparable office. A Foreign Reporting Company is a business or entity created under the laws of another country but registered to conduct business in any U.S. state or jurisdiction.
There are some exemptions to this new reporting requirement. For instance, several types of financial institutions, public utilities, and firms with more than 20 employees and greater than $5,000,000 in sales are exempt. Also, sole proprietors who are not registered with the state (so, not an LLC) are not considered a reporting company.
What do I need to report?
You will be required to identify the beneficial owners of the business entity. A “beneficial owner” is anyone who:
Directly or indirectly exercises “substantial control” over a company.
Directly or indirectly owns or controls 25% or more of a company’s ownership interests.
Remember that these descriptions would likely include the senior management who “controls” the company’s strategy or operations.
Once you have identified the beneficial ownership interests, you will be reporting the following information regarding the company:
Full legal name
Any trade name or DBA name
Complete current U.S. address
State, Tribal, or foreign jurisdiction of formation
IRS Taxpayer Identification Number (including an Employer Identification Number (EIN))
Then, for each beneficial owner, you will be reporting:
Full legal name
Date of birth
Complete current address
Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
State driver’s license
Identification document issued by a state, local government, or tribe
What happens after the initial report?
The business has an ongoing responsibility to report any changes in beneficial ownership or changes in the information provided on a beneficial owner (for instance, a new driver’s license or passport) within 30 days of the change.
What happens if I don’t comply with these new reporting requirements?
There are stiff penalties for failure to comply with the requirement. Failure to file the beneficial ownership report by the applicable deadline will subject the business to a fine of $500 per day up to a maximum of $10,000.
What are my next steps?
This depends on the structure and management of your business. If the ownership and control of your business is straightforward, then begin to gather the identification documents in preparation for filing under these new reporting requirements. However, if the entity and management structure of your business are more complex, you may want to start by reaching out to your attorney or accountant to determine the actual individuals who will need to be reported.
You can get additional information directly from the Beneficial Ownership Information page on the FinCEN website.
This article is intended to be educational and thought-provoking rather than financial advice. When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals. We examine these factors and many others during our financial planning process to determine appropriate financial strategies for YOU.