In an effort to heighten transparency and deter illicit activities, recent legislation has been passed concerning the disclosure of beneficial owners in businesses. The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act for Fiscal Year 2021, now requires companies to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). The goal is to prevent the misuse of companies for criminal gain, enhancing the accountability and transparency of corporate entities.

The Financial Crimes Enforcement Network (FinCEN) in the United States has introduced a new rule that requires businesses to report their beneficial owners to combat financial crimes. The beneficial owners’ legislation applies to LLCs, corporations, partnerships, sole proprietorships, trusts, and other legal entities. The new FinCEN requirements for beneficial owners reporting start coming into effect in January 2024. As a business owner, it is essential to be informed about the new legislation and its potential impact on your business.

Business owner with compliance forms

What is a Beneficial Owner?

Before we dive into the details of FinCEN reporting requirements, let’s first understand what a beneficial owner is. A beneficial owner is a person that owns or controls a company or legal entity, or who benefits from its operations or assets. Beneficial owners may be individual persons or other entities. These entities may be legal persons such as corporations, trusts, LLCs, sole proprietors, and partnerships.

Why Do We Need Beneficial Ownership Reporting?

Beneficial ownership reporting is essential in the fight against financial crimes such as fraud, money laundering, corruption, and terrorist financing. By making clear who ultimately owns and or controls a company or legal entity, it becomes difficult for criminals to hide behind complex ownership structures or falsified identities. In this way, beneficial ownership reporting can contribute significantly to the prevention and detection of financial crimes.

FinCEN Beneficial Owners Reporting Requirements in 2024

Starting in January 2024, new FinCEN legislation requires US businesses to report their beneficial owners to FinCEN. The requirements apply to a wide range of legal entities, including LLCs, corporations, trusts, and partnerships. Businesses need to report their beneficial owners to FinCEN at the time of incorporation or within two years of a change of ownership. Moreover, businesses must keep their beneficial owner information up-to-date and report changes within 90 days of the change.

  • Timeline for filing with FinCEN (there no fee associated with filing at this time):
    • Companies/ Businesses formed after Jan. 1, 2024 – within 90 calendar days of formation
    • Companies/ Business formed before Jan. 1, 2024 – within the 2024 calendar year (deadline 12/31/24)

*There are 23 types of companies that are exempt from filing beneficial owner information and they are listed on the website (included in the exempt filing status are accounting firms, banks, credit unions, public utility companies) – for a full list go to www.fincen.gov/boi

Penalty for not filing Beneficial Ownership Report:

Any company that fails to file a required beneficial ownership report or amendment by its filing deadline is subject to a fine of $500 per day, up to a maximum of $10,000. Willful failures or intentionally filing inaccurate information is a felony, punishable by up to two years in prison

The Implications for Businesses

The new beneficial ownership reporting requirements may seem daunting to business owners, but they can provide a number of benefits as well. For example, by increasing transparency and accountability, businesses can enhance their reputation, credibility, and overall business sustainability. Compliance with beneficial ownership reporting also demonstrates a business’s commitment to combating financial crimes and supporting good governance.

Penalty for not filing Beneficial Ownership Report:

Any company that fails to file a required beneficial ownership report or amendment by its filing deadline is subject to a fine of $500 per day, up to a maximum of $10,000. Willful failures or intentionally filing inaccurate information is a felony, punishable by up to two years in prison

Finally, the new FinCEN legislation for beneficial ownership reporting is intended to increase transparency in business ownership structures and prevent financial crimes. As a business owner, you should be aware of the new reporting requirements, know who the beneficial owners of your company are, and understand your reporting obligations. 

By staying informed and taking proactive steps, businesses can play a vital role in promoting good governance and combating financial crimes. So, it is crucial for business owners to understand and comply with the new legislation to not only avoid penalties but also to contribute towards creating a more transparent and responsible business environment.

A NOTE FROM AUERCPA CO.

Note to our clients and readers: This blog is a compilation of information garnered from research and recent continuing education seminars we attended this year. AuerCPA does not support this new legislation and believe it could potentially damage small businesses caught unaware, especially those who have an LLC and file a Schedule C on their personal taxes. Those businesses may make less than $30,000 in their businesses and could be fined exorbitant penalties if they do not file in the timeframe outlined in this blog. 

We wrote this to get the word out to as many small businesses as possible, so that no one is caught out of compliance.

*Further Information and Resource: www.fincen.gov/boi

**No reports will be accepted before January 1, 2024 and forms will be available on the website (no forms available as of this writing 12/21/23) and companies should check back frequently to obtain the needed forms for filing beneficial ownership reporting.