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New Beneficial Ownership Reporting

Complete guide to new FinCEN beneficial ownership reporting rules starting January 2024. What US business entities must comply, ownership details to disclose, how to submit, and non-compliance penalties.

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New Beneficial Ownership Reporting: Everything US Business Owners Need to Know

Introduction

A major new reporting requirement is coming soon that will impact nearly every business in the United States. The Corporate Transparency Act, passed in 2021, mandates that US companies disclose their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN) beginning on January 1, 2024.

With under a year to prepare, it’s important for business owners to fully understand these new rules. In this in-depth guide, we’ll explain what beneficial ownership reporting entails, who must comply, what information you’ll need to provide, how to submit reports to FinCEN, and potential penalties for non-compliance.

What is Beneficial Ownership?

Beneficial ownership refers to the natural persons who ultimately own or control a legal entity, even if their name doesn’t appear on formation documents. The Corporate Transparency Act requires disclosure of anyone meeting either of these definitions:

  • Owns 25% or more equity stake in the entity
  • Exercises substantial control over the entity, regardless of equity ownership

Some examples of substantial control include serving as CEO, managing members of an LLC, board members, or anyone with decision-making power over finances, policies, or business operations.

Almost all US business entities must comply, including corporations, LLCs, partnerships, trusts, and sole proprietorships. Exempt organizations include most banks, public companies, large corporations with over 20 employees and $5 million in sales, publicly traded exchanges, 501(c) non-profits, political organizations, holding companies, and a few other entity types.

Information Required on Beneficial Owners

For each individual meeting the threshold of beneficial ownership, extensive personal details must be reported to FinCEN:

  • Full legal name
  • Date of birth
  • Current residential or business address (no P.O. boxes allowed)
  • Unique identifying number from an acceptable ID document such as:
    • Social Security Number
    • US or Foreign passport number
    • US Driver’s license details

If any beneficial ownership details change, updates must be provided to FinCEN within 30 days.

Reporting for the Business Entity

In addition to beneficial owner data, the following information must be reported for the business entity itself:

  • Full legal name and all trade name(s)/DBAs
  • Current business address
  • Taxpayer ID number (EIN or SSN)
  • Jurisdiction where the entity was formed
  • Name and contact information for the individual who filed the formation documents (often a registered agent service)

How to Report Beneficial Ownership Information

Beginning on January 1, 2024, reporting will be done through a new secure online reporting system that FinCEN is currently developing. The initial deadline for submission is January 1, 2025.

Access to the data will be limited to law enforcement, regulators, and financial institutions in specific circumstances authorized under the law. The general public will not have access to beneficial ownership information.

Banks, for example, may require entity owners to sign a release granting permission to verify beneficial ownership details against the FinCEN database before opening an account.

Penalties for Not Reporting Beneficial Ownership

While civil and criminal penalties are still being established, failing to comply with beneficial ownership reporting could result in substantial fines. Entities may also be unable to open bank accounts or access other services if beneficial ownership data is not provided as required.

Actions to Take Now to Prepare

Even though reporting does not begin until January 2024, business owners should start preparing now:

  • Review ownership information and identify all beneficial owners
  • Collect required identifying details like SSNs and addresses on each
  • Consider restructuring ownership if beneficial owners want to remain private
  • Consult legal counsel to understand compliance requirements
  • Watch for updates from FinCEN on reporting procedures and penalties

Stay tuned to our blog for ongoing coverage of beneficial ownership reporting requirements. This new rule is likely to have a major impact on nearly every US business. We’ll continue providing guidance to help owners prepare and comply fully when the time comes.