In September of 2022, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a new beneficial owner reporting requirement for certain U.S. entities in an effort to clamp down on illicit finance and money laundering, pursuant to Congress’ Corporate Transparency Act. The rule requires most U.S. corporations, limited liability companies, and other entities created in or registered to do business in the U.S. to report information about their beneficial owners—the persons who ultimately own or control the company—to FinCEN.
As of January 1, FinCEN opened the online portal to facilitate this reporting. Read on to see if reporting is required for your organization and what steps you should take next.
Understanding the ruling
The new rule went into effect on January 1, 2024. Companies that existed before that date will have one year to submit their first report (by January 1, 2025). Companies created or registered after January 1, 2024, will have 90 days to submit their first report after they are established. After submitting the initial report, all companies will have to update the information about their owners within 30 days of any changes.
Who is considered a “beneficial owner”?
In general, a beneficial owner is any individual (1) who directly or indirectly exercises “substantial control” over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.
Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over, important decisions the reporting company makes. In this regard, any senior officer is deemed to have substantial control over a reporting company. The ownership interests can include simple things like regular shares of stock or more complicated arrangements.
What companies are required to report?
Certain companies—referred to as “reporting companies”—will be required to report their beneficial ownership information to FinCEN: domestic reporting companies and foreign reporting companies.
A domestic reporting company is defined as…
- a corporation,
- a limited liability company, or
- any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
A foreign reporting company is any entity that is…
- a corporation, limited liability company, or other entity formed under the law of a foreign country, AND
- registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.
If you had to file a document with a state or Indian Tribal-level office to create your company or to register it to do business if it is a foreign company, then your company is most likely a reporting company, barring any applicable exemptions.
What information will companies have to report?
A reporting company will have to report:
- Its legal name;
- Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
- The current street address of its principal place of business if that address is in the United States (for example, a domestic reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the U.S., the current address from which the company conducts business in the U.S. (for example, a foreign reporting company’s U.S. headquarters);
- Its jurisdiction of formation or registration; and
- Its Taxpayer Identification Number (“TIN”).
A reporting company will also have to indicate the type of filing it is making (that is, whether it is filing an initial report, a correction of a prior report, or an update to a prior report).
What steps should I take next?
FinCEN opened an Online Portal that allows all “reporting companies” to electronically file initial Beneficial Ownership Information (BOI) Reports, which began on January 1, 2024. As a reminder, companies that were registered prior to January 1, 2024, have until December 31, 2024, to file its initial BOI Report.
However, given the complexities of this new regulatory landscape, we recommend consulting with legal counsel as soon as possible to ensure that your business is fully compliant with the Corporate Transparency Act. Legal professionals can provide tailored advice based on your specific circumstances and will assist you with the preparation of your company’s BOI Report. If you are not currently engaged with an attorney to prepare your company’s initial BOI Report, please contact us so that we may connect you with the proper resource.