Many of our clients engage us to set up US companies, whether to start a new business or expand operations to the US.
In the past, little information regarding ownership of new entities has been required as part of the formation or incorporation process. Nevertheless, as of January 1, 2024, the 2021 Corporate Transparency Act (“CTA”) will require certain corporations, limited liability companies, and other entities to report the ownership details of the entity to the Financial Crimes Enforcement Network (“FinCEN”).
We provide a brief and general summary of the new reporting requirements below.
Who is required to report?
While there are a number of entities exempted from the reporting requirements, the vast majority of new and existing businesses will be required to report their beneficial ownership information (“BOI”) to FinCEN, specifically ‘Domestic Reporting Companies’ and ‘Foreign Reporting Companies’.
A ‘Domestic Reporting Company’ is a corporation or limited liability company, formed by the filing of a document with a state’s Secretary of State or a similar office under the law of a State or an Indian Tribe.
A ‘Foreign Reporting Company’ is one that is not created or formed in the United States, but which has filed a document with a Secretary of State to transact business in that State (at times called ‘authority to transact’, ‘qualification’, or other variations).
Who is a beneficial owner?
A beneficial owner is an individual who directly or indirectly: (i) owns or controls at least 25% of the reporting company’s ownership interests; or (ii) exercises substantial control over, the reporting company. In terms of exercising substantial control, FinCEN advises that individuals occupying senior officer positions such as President, CFO, COO, individuals who have the authority to appoint or remove a senior officer, individuals who are important decision-makers and influence the direction of the business or its finances and structure are considered to exercise substantial control. Finally, because not all businesses adopt exactly the same or traditional structure, FinCEN considers that other types of control may fall under a “substantial control test” category of control, intended to be a “catch-all” category.
What information is reported?
Two types of information need to be reported to FinCEN:
- information about the beneficial owners of the reporting company; and
- information about the company applicants, if the reporting company was created after January 1, 2024. Company applicants are the individuals who organized the original filing to form the business entity with a Secretary of State (or foreign equivalent).
For both beneficial owners and company applicants, FinCEN will collect (i) the individual’s name; (ii) the individual’s date of birth; (iii) the individual’s address; and (iv) an identifying number from an acceptable identification document e.g., passport or driver’s license.
Where and when must companies report their beneficial ownership information?
Companies can file their report on FinCEN’s website directly.
New companies, formed between January 1, 2024, and January 1, 2025, will have 90 days to file their initial beneficial ownership report.
Existing companies will have until January 1, 2025, to file their initial beneficial ownership reports.
Companies formed after January 1, 2025, will have 30 days to file their initial beneficial ownership report.
Business entities are required to file updated reports within 30 calendar days of ownership updates. Changes that would trigger an updated report include changes to the beneficial ownership, business name, change of CEO, CFO, etc., a sale that changes who meets the 25% threshold requirement, or a change of address, name, or of the unique identifying number on the identification document.
Exemptions to the reporting requirements exist. You should consult with an attorney to determine whether any of them apply to your business entity.
What penalties do individuals face for violating beneficial ownership information reporting requirements?
A person who willfully violates the BOI 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 years imprisonment and a fine of up to $10,000.
The Serus Legal team is experienced in working through regulatory issues. Serus is an international law firm that uses technology and lower overheads to provide legal services at a significantly better value. Please don’t hesitate to get in touch with Elannie Damianos if you need assistance in determining the applicability of the CTA BOI reporting requirements to your business.
The content of this insight does not constitute legal advice.