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New Disclosure Requirements Effective January 1, 2024
What’s New?
Beginning January 1, 2024, all new entities formed in the U.S. will be required to disclose its ownership to the United States Department of the Treasury Financial Crimes Network (FinCEN), who, in turn, may share the information with law enforcement or financial institutions ideally making it harder for bad actors to engage in illicit financial transactions.
Additionally, if your company was created or registered prior to January 1, 2024, you will have until January 1, 2025 to report this ownership information to FinCEN.
FinCEN estimates that reporting of the beneficial ownership can take between 90 and 650 minutes.
Below are some key requirements of The Corporate Transparency Act.
1. Ownership Disclosure
The Corporate Transparency Act requires that individuals with significant control and ownership are disclosed. It’s not just about executives; it’s about the owners of the entity. A beneficial owner is defined in 31 U.S.C. § 5336(a)(11)(A), as an individual who “exercises substantial control” over the entity or “owns or controls not less than 25 percent of the ownership interests of the entity.”
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2. New Reporting Mandate
The report must be filed with FinCEN using their secure electronic filing system on their website. There are two types of reporting companies: (1) domestic reporting companies and (2) foreign reporting companies. It is likely that you own a domestic reporting company, which is defined as a corporation, limited liability company, and other entities created by the filing of a document with any secretary of state in the U.S. One positive about the reporting mandate is that its only a one-time report, unless you need to update or correct your initial filing.
What information about the Company must be reported?
The company will need to report the following:
1. Its legal name;
2. Any trade names, “doing business as” (d/b/a) or “trading as” (t/a) names;
3. The current street address of its principal place of business if that address is in the United States or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States;
4. Its jurisdiction of formation or registration; and
5. Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).
6. A reporting company will also have to indicate whether it is filing an initial report, or a correction or an update of a prior report.
What information about the Beneficial Owner must be reported?
For each individual who is a beneficial owner, a reporting company will have to provide:
1. The individual’s name;
2. Date of birth;
3. Residential address; and
4. An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.
5. The reporting company will also have to upload an image of the identification document used to obtain the identifying number in item 4.
3. The Purpose
In Corporate Transparency Act ,within its provisions, Congress highlights the intent of malicious individuals to obscure their ownership of corporations, LLCs, and/ or comparable entities in the United States, thereby facilitating activities such as money laundering, terrorist financing, tax fraud, and other illicit behaviors. Congress emphasizes the necessity of federal legislation that mandates the gathering of beneficial ownership information to safeguard national interests and enhance the effectiveness of initiatives aimed at combating such illegal activities.
4. The Consequences For Failing to Report
FinCEN has made it clear that failing to report your company’s beneficial ownership can cause you to face civil and criminal penalties. As specified in the Corporate Transparency Act, a person who willfully violates the Beneficial Ownership Interest(s) reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two (2) years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a Beneficial Ownership Information Report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information. See more about the penalties here.
5. Who’s Exempt From Reporting?
If your company has the following: (1) more than 20 full time employees; (2) is located in a physical office in the United States; and (3) has filed a federal income tax or information return in the previous year of more than $5 million in gross receipts or sales, then you are exempt from filing the Beneficial Ownership Interest Report for the company.
Additionally, there are 23 types of entities that are exempt from the beneficial ownership information filing requirements. These entities include publicly traded companies meeting specified requirements, many non-profits, and certain large operating companies. Below is a list provided by FinCEN of the 23 exemptions which can be found on FinCEN’s website.
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Renowned for his expertise and integrity, Attorney Robert Elias’ firm ensures clients receive expert counsel and guidance in navigating legal intricacies such as those presented by the Corporate Transparency Act. For more insights into this new legislation and expert advice on compliance, contact at (305) 823-2300 or relias@eliaslaw.net.
