Starting Jan. 1, 2024, many companies will be required to report information to the U.S. government about who ultimately owns and controls them.
Here’s why: In 2021, the U.S. government enacted the Corporate Transparency Act. It was designed to combat the use of shell companies and other corporate structures for illegal activities like money laundering and terrorism financing.
This law requires many companies to report who owns an interest in their company.
The bottom line: The U.S. government wants to ensure each company in the United States is owned by a legitimate person to avoid any company being used for fraudulent or criminal activity.
Here’s what you need to know about these new business reporting requirements.
Who’s a beneficial owner?
Business owners of certain types of companies will need to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
A beneficial owner is any person involved in a company who either directly or indirectly:
- Exercises substantial control over the reporting company, or
- Owns or controls at least 25% of the ownership interests of the reporting company.
You could be in both camps.
For example, a company can have two people who exercise substantial control over the company as well as three owners with at least 25% of the ownership. You must report everyone who is considered a beneficial owner, no matter how many people, according to FinCEN.
Substantial control over a company refers to someone who meets any of the following four criteria:
- Is a senior officer of the company (like a CEO or CFO).
- Has the authority to appoint or remove certain officers or a majority of directors of the company.
- Is an important decision-maker in the company.
- Wields any other form of substantial control of the company.
There are some exceptions to the beneficial ownership definition, including minor children, individuals acting on behalf of an actual beneficiary, employees, inheritors with only a future interest in the company through inheritance, and creditors of the company.
But most U.S. companies will need to report who owns and/or runs the company.
What are reporting companies?
Companies that are required to report their beneficial ownership information are called reporting companies. The two types of reporting companies are:
- Domestic companies, like limited liability companies and any other business entities created by filing a document with a secretary of state or any similar office in the United States.
- Foreign reporting companies, which are entities formed in a foreign country that are registered to do business in the United States.
There are 23 types of exempt companies that do not need to report. These include banks, credit unions, insurance companies, public utilities and inactive companies.
Understanding the exemptions is important so you know whether your company is exempt. Typically, you can ask yourself three questions to determine if your U.S. company is a reporting company:
- Is my company a corporation?
- Is my company a limited liability company?
- Was my company created by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe?
If you answered no to all three questions, your company is not a reporting company.
If you answered yes to any of the questions, your company may be a reporting company. You can check this list of exempt company types to see if your company type is exempt.
What are the reporting deadlines?
The deadlines for reporting beneficial ownership are:
- Any reporting company created or registered to do business prior to Jan. 1, 2024, will have until Jan. 1, 2025, to file its initial report.
- Any company created or registered between Jan. 1, 2024, and Dec. 31, 2024, will have 90 days from the date the company receives actual or public notice that its creation or registration is effective.
There is no fee for companies to submit their beneficial ownership information report to FinCEN. But failure to provide complete and accurate information can result in criminal or civil penalties, including fines of up to $10,000 and up to two years in prison.
Senior officers of any company who fail to file a proper beneficial ownership information report may be held responsible.
How do you file?
Most companies must file their beneficial ownership information with FinCEN online.
If a reporting company is unable to electronically file their beneficial ownership information report, they should contact FinCEN to make other arrangements.
Each company that must share its beneficial ownership information must report its:
- Full legal name and any trade names
- U.S. address
- Jurisdiction of formation
- IRS Taxpayer Identification Number
It also must report each beneficial owner and company applicant’s full legal name, date of birth, current address, unique identifying number along with issuing jurisdiction and an image of a non-expired government ID.
Reporting companies must file an updated beneficial ownership Information report within 30 days of any changes to the above information.
For example, if an individual listed in the ownership report moves, the new address must be updated with FinCEN within 30 days.
Learn more about the beneficial ownership information requirements and find information about the form on FinCEN’s Beneficial Ownership Information webpage.
Who will have access to this information?
Federal, state, local and Tribal officials and certain foreign officials will be able to access beneficial ownership organization for activities related to national security, intelligence and law enforcement, according to FinCEN.
In certain circumstances, financial institutions will also have access to reports.
- Determine whether you are a reporting company under FinCEN’s definition and whether your company fits the list of exemptions.
- If you are a non-exempt reporting company, you’ll need to file your beneficial ownership information report.
- Read FinCEN’s Small Entity Compliance Guide for more information on the beneficial ownership information requirements.