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An End to Anonymous Business Ownership Interest
On January 1, 2024, the reporting requirements of the Corporate Transparency Act went into effect. Enacted in 2021, the Corporate Transparency Act was designed to prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other criminal activities. Under the new reporting requirements, businesses must disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a US Department of Treasury branch. Beneficial owners are defined as those with 25% or more ownership interest or personal control over a business or one who benefits from a company’s assets. The Corporate Transparency Act will work with the Know Your Customer and Anti Money Laundering regulations to help prevent criminal activity. Read more to see how this act affects your business.
THE CORPORATE TRANSPARENCY ACT:
An End to Anonymous Business Ownership Interest
In the business world, with the exception of trademarks, most business/corporation activity has historically been regulated at the state level. Corporate statutes at the state level are similar but lack consistency among the states concerning reporting requirements. The Corporate Transparency Act was enacted in 2021 to enhance transparency in entity structures and prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities. It will apply to any corporation, limited liability company, partnership, or similar entity registered to do business in any U.S. state, territory, or Indian tribe. In 2016, a pilot program in Miami proved successful when it resulted in a 95% decrease in corporate all-cash real estate sales.
Under the Corporate Transparency Act, businesses must provide beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a branch of the US Treasury Department. Beneficial ownership is defined as one with a 25% or more ownership interest, personal control over it, or one who benefits from the business’ assets. Companies must provide the name, date of birth, current residential or business address, and a unique identification number and image (passport, driver’s license, or other identification card). Those with an ownership interest in a business can directly apply for a FinCEN Identifier Number or provide the information to the report preparer. The report will also include information about the business and must consist of the company’s employer identification number and the names of any DBAs under which the company does business. In addition, anyone who assists in creating these businesses, such as attorneys, will be monitored.
The reporting requirement went into effect on January 1, 2024. Newly created businesses formed after January 1, 2024, will have 90 days from when the company is created or registered to file their initial report. Those businesses formed on or before January 1, 2024, will have until January 1, 2025, to file their initial report. Beginning on January 1, 2025, newly created businesses will have 30 days to file their initial report. At this time, there are no annual filing requirements. However, any changes in beneficial ownership interest must be filed with FinCEN within 30 days to amend the report to include updated information. Penalties for willful noncompliance can result in fines of up to $10,000 and/or 3 years in jail.
Since the pandemic, the number of new businesses that have started in the US has increased by nearly 25%. While the government may appear to be casting a wide net to catch a few bad actors, it’s a new requirement to keep us secure. The reporting requirements will mostly impact small, limited liability companies, partnerships, and corporations. Some businesses are exempt from these reporting requirements. Below are a few steps to take to make sure you comply:
- Determine if your small business is required to file a report.
- Determine if your business is exempt from filing a report.
- Determine who the beneficial owners are.
- Implement a procedure to be sure your report is up to date.
- Determine whether you want to prepare the report yourself or have a third party prepare it.
For more information visit https://www.fincen.gov.
