Why do legitimate, law-abiding businesses need to file beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN)?
For years, the U.S. government has been working to stop criminals from using business structures to hide or benefit from illegal activities, like trafficking or money laundering. In 2021, Congress enacted the Corporate Transparency Act, which creates a requirement for companies to be more transparent about who owns that company.
Starting on January 1st, 2024, FinCEN is requiring many companies to report beneficial ownership information – information about who owns or controls a business. The purpose is to make it harder for bad actors to hide behind opaque ownership structures like shell companies or false business fronts.
If all of this is news to you, we’ll walk you through the new requirement step-by-step. Read on to learn if you’re required to report beneficial ownership information to FinCEN, when you need to file this information by, and what information you’ll need to gather.
Is Your Business Required to Report to FinCEN?
Most companies will need to report their beneficial ownership information to FinCEN, but there are some exceptions. FinCEN defines “reporting companies” as those that are required to submit their information.
Reporting companies include:
- Corporations and LLCs created in the U.S. under the law of a state or Indian tribe.
- Foreign companies that are registered by a state or Indian tribe to do business in the U.S.
This definition covers many businesses, but there are some notable exceptions, including publicly traded companies, non-profits, and large operating companies.
For a full list of the 23 types of entities not required to register beneficial ownership information with FinCEN, read the Compliance Guide.
If your company fits the definition of a “reporting company” and is not listed as an exempt entity, then you are required to report beneficial ownership information to FinCEN.
This requirement holds regardless of the size of your company. For example, an LLC with one owner and no employees has the same obligation to report as a corporation with hundreds of employees.
Who is a Beneficial Owner of a Company?
The information you are required to report is information about any beneficial owners of a company.
According to the FinCEN website, a beneficial owner is defined as:
“A beneficial owner is any individual who, directly or indirectly:
- Exercises substantial control over a reporting company
- Owns or controls at least 25 percent of ownership interests of a reporting company”
Every company has at least one beneficial owner – the founder or CEO of a company. Some companies may have multiple beneficial owners.
How do you know who is a beneficial owner of your company? The FinCEN Compliance Guide lists out very detailed definitions and specific steps you can take to identify all beneficial owners of your company.
Broadly, your C-Suite is typically a beneficial owner because they exercise substantial control over the company. If someone owns or controls at least 25 percent of ownership interests of the company, they too are considered a beneficial owner. This includes ownership via equity, stock, voting rights, or capital or profit interest.
If you’re unsure about who your beneficial owners are, using the FinCEN Compliance Guide is a great first step.
What Information About Beneficial Owners Will You Need to Report?
FinCEN only requires basic information about reporting companies and beneficial owners. The FinCEN website lists out all of the reporting requirements, but you can expect to report on the following information:
- Legal name
- Any trade names or Doing Business As (DBA) names
- U.S. Address
- Tax Identification Number (TIN) and/or (EIN) Employer Identification Number
- The state, tribal, or foreign jurisdiction of formation. This is the state or tribe that you registered your business through, or country of formation if you have a foreign company
For EACH beneficial owner of the company you will need to provide that person’s:
- Full legal name
- Date of Birth
- Current address
- The number, jurisdiction, and image of one of the following documents: U.S. Passport, state driver’s license, identification document (state, local government, or tribe), or foreign passport IF they don’t have the other documents
How Do You Report Beneficial Ownership Information to FinCEN and What’s the Deadline?
Reporting beneficial ownership information to FinCEN is relatively easy. You can file your report using their Beneficial Ownership Information E-filing System found on the FinCEN website.
You can also create a FinCEN ID to manage your report, though this is optional. The ID can make it easier to update your report as your business structure changes.
Once you’ve filed your report, you’ll receive a confirmation of receipt if you’ve filed correctly. You’ll want to save this confirmation and file it with your other business structure or compliance documents.
FinCEN started accepting reports on January 1st, 2024. This means that you could go on the website today and file your report. That being said, there are specific deadlines for filing a report, according to the date your company was created.
FinCEN beneficial ownership reporting deadlines:
- Companies created or registered PRIOR to January 1st 2024: You have until January 1st 2025 to register beneficial ownership information with FinCEN.
- Companies created or registered between January 2nd 2024 and December 31st 2024: You must file your report to FinCEN within 90 calendar days of receiving notice of your company’s creation or registration.
- Companies created or registered AFTER January 1st, 2025: You must file your report to FinCEN within 30 calendar days of receiving notice of your company’s creation or registration.
Any time your beneficial ownership information changes – either the personal information of a beneficial owner changes or you add or change beneficial owners – you will need to update your report to FinCEN within 30 days of the relevant change.
Why It’s Important to Comply With the New FinCEN Requirements
FinCEN’s new reporting requirement may seem cumbersome for already busy business owners, but this new initiative will go a long way in making sure that bad actors don’t negatively affect the U.S. economy.
Stopping fraudulent and criminal business practices benefits everybody by ensuring that legitimate profits stimulate the economy, while illegitimate profits don’t continue to circulate between criminal organizations.
Filing beneficial ownership information is the responsibility of the business owner, and there are penalties for not reporting. Willful failure to report or update beneficial ownership information, or providing false information, can cost you up to $500 for each day you’re in violation. These penalties can add up quickly, and can even result in jail time.
Filing beneficial ownership information with FinCEN is easy. We recommend gathering the information you need and filing your report as soon as possible so it’s off your plate.
For smaller businesses, it shouldn’t take long to put together a report. For larger businesses or businesses with multiple potential beneficial owners, start determining who is a beneficial owner and gathering the information you need now.
Here are a few resources to help you put your report together:
- FinCEN’s Beneficial Ownership Information Website
- Frequently Asked Questions
- Beneficial Ownership Information Compliance Guide
Commonwealth Payroll & HR
Commonwealth Payroll & HR is dedicated to providing guidance and information about evolving requirements in compliance, reporting, and corporate matters. Our comprehensive Human Capital Management Solutions can help you stay compliant and simplify your reporting requirements by gathering everyone’s information in one place. Contact us to learn more about our Human Capital Management system and our customizable plans.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article may contain links to other third-party websites provided only for the convenience of the reader.