Beneficial Ownership Reporting: A Game-Changer in Business Transparency

ARTICLE | July 17, 2024

The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has taken a significant step towards enhancing transparency in business ownership structures. As of January 1, 2024, certain corporations, limited liability companies (LLCs), and other similar entities registered to do business in the United States are required to report information about their beneficial owners.

This initiative comes as a result of the implementation of the Corporate Transparency Act (CTA) passed in 2021. The CTA is a bipartisan effort aimed at combatting illicit activities such as money laundering, terrorism financing, and corruption that's often facilitated by opaque corporate structures.

The requirement to report beneficial ownership information is a significant leap towards eliminating fundamental vulnerabilities in the American financial system. It is expected to help in the fight against the epidemic of illicit funding and create a more transparent and secure business environment.

Who Needs to File a Beneficial Ownership Information Report?

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Entities required to report beneficial ownership information include corporations, LLCs, and other entities created by filing a document with a secretary of state or a similar office. A beneficial owner is defined as an individual who either exercises significant control over the entity or owns at least 25% of the entity's interests.

However, certain entities are exempt from these requirements. These include publicly traded companies, certain regulated entities such as banks and insurance companies, and entities that employ more than 20 full-time employees and have filed a federal income tax return in the previous year showing more than $5 million in gross receipts or sales.

What Information Needs to Be Reported?

Beneficial owners' full legal name, date of birth, residential or business address, and an identification number from an acceptable identification document such as a passport or driver's license are required. This detailed information will enable FinCEN to have accurate and comprehensive data about individuals who exercise significant control or ownership interests in a company.

When to Report the Beneficial Ownership Information?

The timeline for reporting beneficial ownership information depends on the date of the company's formation or registration. Existing entities that were created or registered to do business in the United States before January 1, 2024, must file their reports by January 1, 2025.

Companies formed or registered to do business in the United States in 2024 have 90 calendar days to file their reports after receiving actual or public notification that their company's formation or registration is effective.

Companies formed on or after January 1, 2025, have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial reports with FinCEN.

FinCEN has streamlined the filing process, making it secure, free of charge, and user-friendly. Businesses are encouraged to take advantage of the resources provided by FinCEN to ensure they comply with the filing requirements effectively and efficiently.

In conclusion, the beneficial ownership information reporting requirement is a significant development for the U.S. financial system. It is crucial for businesses to understand these requirements and ensure compliance to support the fight against illicit financial activities and promote transparency in the corporate landscape.