NEW REPORTING REQUIREMENTS FOR BUSINESS OWNERS
The Corporate Transparency Act and Beneficial Ownership Reports
By Michael Kennedy
mk@ingenuitycounsel.com
SUMMARY
Starting in 2024, existing and new companies may have an additional filing: the Beneficial Ownership Report under the Corporate Transparency Act. There are some exemptions, but smaller businesses, real estate investment companies, and companies without a physical presence in the United States will generally not qualify for such exemptions. The filing period begins on January 1, 2024, and reports are filed online at www.FinCEN.gov.
BACKGROUND
As part of Congress’ efforts to identify and prevent money laundering, they have tasked the US Treasury Departments Financial Crimes Enforcement Network (“FinCEN”) via the Corporate Transparency Act (“CTA”) with establishing a private national database of beneficial owners of entities considered as “reporting companies.” The thought behind CTA is that bad actors conceal identities and ownership of entities through the use of shell companies to facilitate illicit activities, such as money laundering, human or drug trafficking, fraud and acts of terrorism. The lack of required transparency on ownership and identity has seemingly perpetuated such criminal activities prompting the new legislation
WHO IS REQUIRED TO REPORT UNDER CTA
All “reporting companies” are required to file Beneficial Ownership Reports. Reporting companies are broadly defined as any corporation, limited liability company, or other entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe. Entities formed abroad and registered to do business in the United States are also considered reporting companies.
Some companies are not considered reporting companies. Generally excluded from reporting requirements are those entities regulated by existing regimens with pre-existing beneficial ownership reporting processes. For example, publicly traded companies, investment vehicles operated by independent advisors, non-profits, and government entities are all exempted from CTA’s reporting requirements. Furthermore, the broadest category of companies exempt from CTA’s reporting requirements are entities that:
- employ more than twenty employees,
- previous year tax return demonstrating more than $5 Million in gross receipts or sales, and
- have an operating presence at a physical office within the USA;
Subsidiaries of such qualifying entities above are also exempt from the requirement to file.
WHO IS A BENEFICIAL OWNER
Reporting companies are required to report their beneficial ownership. A beneficial owner of a reporting company is any individual (i) who, directly or indirectly, exercises substantial control over the entity (meaning an individual who directs, determines, or has substantial influence to make important decisions about a reporting company’s business, finances, and structure) or (ii) who owns or controls not less than 25% equity in such entity.
Excluded from beneficial owners are:
- minor children (so long as such minor’s parent or guardian’s information is reported)
- an individual acting as an intermediary or agent on behalf of another
- a person whose control over such entity derives solely from their employment
- a person whose control over such entity is through a right of inheritance
- a creditor of such entity (unless they qualify as a beneficial owner through substantial control or equity ownership
WHEN IS REPORTING DUE
The CTA comes into effect January 1, 2024. Reporting companies existing prior to that date will have one year to file their initial Beneficial Ownership Report. Newly formed companies in 2024 that aren’t exempt are required to file their report within 90 calendar days of their creation, however entities created after 2024 will need to file within 30 days. Reports will not be accepted before January 1, 2024. When a foreign entity receives its authorization to conduct business in the U.S. is when the timer starts for them.
HOW TO REPORT
Anyone who the reporting company authorizes to act on its behalf (such as an employee, owner, or third-party service provider) can submit their company’s Beneficial Ownership Report to FinCEN online at www.FinCEN.gov. When submitting the report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number. The personal identifying information of the beneficial owners, required to be submitted, will include:
- the beneficial owner’s name
- the beneficial owner’s birth date
- the beneficial owner’s current residential address
- a unique identifying number such as a passport number, driver’s license number or other accepted document number
When the beneficial ownership of the company changes, they will have 30 days to update their Beneficial Ownership Report.
The CTA provides that, for each day a company fails to report or update their beneficial ownership, civil and criminal penalties may apply. The person who caused the violation, be it the company or a beneficial owner may be subject to the penalties.
ADDITIONAL INFORMATION
For additional guidance and to determine whether your entity qualifies for an exemption, you can visit www.FinCEN.gov/boi/small-business-resources or contact our office at 519-252-3888 or mk@ingenuitycounsel.com. Ingenuity Counsel can handle your corporate needs such as filing your initial or updated Beneficial Ownership Reports, secretary of state filings, formations, acquisitions, and more.