Starting on January 1, 2024, small businesses will be required to disclose information about their "Beneficial Owners" to the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). A Beneficial Owner includes any individual who directly or indirectly controls an entity or who owns or controls 25% or more of the equity of an entity.

The new requirements, implemented by the Corporate Transparency Act (CTA) and related Treasury regulations, are meant to combat money laundering and other illicit activity through the creation of shell companies.

Below are key questions business owners will need to ask about the new reporting requirements:

Which businesses need to disclose Beneficial Ownership information to FinCEN?

Corporations, limited liability companies (LLCs), and other entities formed by making a filing with a Secretary of State or similar office must disclose Beneficial Ownership information to FinCEN. Large companies that (i) employ more than 20 employees in the U.S., (ii) have a physical office in the U.S., and (iii) have more than $5 million in gross receipts or sales in the U.S. are exempt from the reporting requirements. Other exemptions, including exemptions for publicly traded companies and tax exempt entities, are listed under 31 CFR §1010.380(c)(2).

Foreign entities qualified to do business in the U.S. may also be subject to the CTA's reporting requirements.

Who counts as a Beneficial Owner?

Beneficial Owners are individuals who (i) directly or indirectly control an entity or (ii) own or control 25% or more of the equity of an entity. It is important to note that individuals need not directly own the equity of a company to qualify as Beneficial Owners. They can hold equity through one or more intermediary entities and still be considered Beneficial Owners.

Any individual who exercises substantial control over a reporting company, including senior officers and anyone with substantial influence over important decisions made by the reporting company, will also be considered a Beneficial Owner.

What needs to be disclosed?

Reports made to FinCEN will include basic information about the reporting company: its name, address, jurisdiction of formation (or registration), and tax identification number.

Reports will also include the name, date of birth, and residential address of the Beneficial Owners of the reporting company, as well as a unique identifier from a U.S. passport, state driver's license, or other government-issued identification document. All Beneficial Owners will also be required to submit a copy of the document in which the unique identifier appears.

These reports are not publicly available. The disclosed information is kept in a database that can be accessed by certain government agencies.

When do I need to make filings with FinCEN?

Reporting companies formed before December 31, 2023, must file a report on the FinCEN website between January 1, 2024, and January 1, 2025.

Reporting companies formed in 2024 must file a report on the FinCEN website within 90 days of formation, and those formed after December 31, 2024, must make the required filing within 30 days of formation.

Failure to file a report may result in a civil fine of $500 per day and a criminal penalty of up to $10,000 and imprisonment for up to two years.

Do I have any ongoing obligations after filing?

Yes, if any information about the Beneficial Owners or the company changes after the initial report is filed with FinCEN, the reporting company will need to make an amended filing with FinCEN within 30 days of the change. The penalties listed above apply to a failure to update a report and the reporting of incorrect information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.