New Compliance Requirement – Beneficial Ownership Interest Reporting

This post is to inform entities that a new law will take effect in less than a month. The Corporate Transparency Act (Act), which takes effect on January 1, 2024, will require most entities to report information about their ownership structure by filing with the Financial Crimes Enforcement Network (FinCEN). So, even though FinCEN isn’t accepting any filings before 2024, it is important to be prepared.

Entities must report information about their “beneficial owners” and “company applicants.” The entities that need to make these filings include corporations, limited liability companies, and any other entity created by filing a document with the Secretary of State. Foreign entities must also report their beneficial ownership information if registered to do business in a state.

For this rule, a beneficial owner is defined as someone who owns 25% or more of the outstanding equity of the entity or an individual who has “substantial control” over the entity. “Substantial control” is someone who makes important decisions on behalf of an entity (such as managers or executive officers). A “company applicant” is the individual who files the document to create the entity and the individual who is primarily responsible for directing the filing (if different). For example, both the paralegal who submits the filing and the lawyer overseeing the filing would be company applicants for this purpose.

The required information about beneficial owners and company applicants is:

• Full Legal Name
• Date of Birth
• Residential Street Address (Business Address for Company Applicant)
• Scanned Identification Document with a Unique ID Number (e.g., passport or driver’s license/state ID)

Reporting entities must also provide the following information about the entity:

• Full Legal Name of Entity (including trade or d/b/a name)
• Business Street Address
• Jurisdiction of Formation
• Company Identification Number (TIN)

Entities formed before January 1, 2024, have one year to file their initial reports. Entities formed after January 1, 2024, have 90 days to file their initial reports. Entities formed after January 1, 2025, have 30 days to file their initial report. This means existing entities have some time to consider the impact and implement filing procedures. Anyone who needs an entity formed on or after January 1, 2024, should be prepared to comply quickly. Anytime information reported changes, the changes should be updated within 30 days of the change. There are civil and criminal penalties for failure to comply with this new registration requirement and for not keeping information properly updated.

There are 23 exemptions from the reporting requirements for entities. For example, 501(c)(3) companies, large corporations, dormant companies, banks, investment entities, public utilities, or any entity with government authority are exempt from reporting.

SCAM WARNING: It has come to our attention that there are scams proliferating around this topic. Letters purporting to be from FinCEN or others requesting the sensitive information required in the filing should be viewed with suspicion. The fraudulent correspondence may be titled “Important Compliance Notice” and may ask the recipient to click on a URL or to scan a QR code. FinCEN will not send unsolicited requests for reporting information.

This blog post is a summary and isn’t intended to provide advice specific to your situation. Please contact an attorney if you have questions about the Act or would like assistance complying with the reporting requirements. You can also find regularly updated information through FinCEN’s website, including a small business compliance guide that includes more detailed information, flow charts to understand compliance requirements, etc.

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