Are You Ready for 2024? New Reporting Rules for U.S. Companies

ARTICLE | December 13, 2023

From January 1, 2024, small businesses across the United States will face a new reporting requirement that compels them to disclose specific personal information about their beneficial owners and other key decision-makers. This new requirement is part of the Beneficial Ownership Information Rule, adopted under the Corporate Transparency Act (CTA) passed by Congress in 2021.

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The Beneficial Ownership Information Rule mandates that both domestic and foreign corporations, limited liability companies (LLCs), and other entities formed by filing with the Secretary of State or a similar office in the U.S must report unless they qualify for one of the enumerated exemptions. The Rule aims to shed light on the beneficial ownership of companies, making it harder for malicious actors to hide finances through complex ownership structures or shell companies.

The reporting requirement will apply initially to entities formed or registered to do business on or after January 1, 2024. For businesses in existence before this date, they will have until January 1, 2025, to comply. For entities formed after January 1, 2024, they will need to disclose the beneficial owner's information within 30 days of formation. Any subsequent changes to the disclosed information must be updated within 30 days.

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, will receive and maintain the reported information. To help Reporting Companies comply, FinCEN recently published the "Small Entity Compliance Guide" and proposed a filing extension for companies formed between January 1, 2024, and January 1, 2025. Instead of the initial 30 days, these companies will have 90 days to file their initial reports.

The information to be reported includes details about the company, any individual owning 25% or more of the stock, voting rights, or ownership interests in the company, and other individuals who exercise substantial control over the company's finances or operations. For each beneficial owner, Reporting Companies must disclose the individual's full name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document.

The implications of the new reporting regime are not limited to small businesses alone. The private funds industry is also facing uncertainties, especially concerning the application of available exemptions. In response, law firms are collaborating to address common questions from clients in this industry related to the new beneficial ownership reporting regime.

Violations of the reporting obligations can attract substantial penalties. Non-compliance, providing false or fraudulent information, or failing to update the information may result in civil penalties of up to $500 for each day the violation continues, or criminal penalties, including imprisonment for up to two years and/or a fine of up to $10,000. Furthermore, senior officers of an entity that fails to file a required report may be held accountable for that failure.

The Beneficial Ownership Information Rule is a significant change in the regulatory landscape for small businesses and private funds. Entities affected should act now to identify whether they must report and which individuals within their organization are required to disclose their personal information under the Rule. As the countdown to January 1, 2024, begins, it is crucial for businesses to understand and prepare for the new reporting obligations.