New for 2024: Beneficial Ownership Reporting
While 2024 looks to be full of possibilities, it also starts the clock ticking on an issue that may affect many US-based corporations and LLCs: beneficial ownership reporting. Broadly, as of 2024, virtually all small companies and LLCs in the US are likely required to submit beneficial ownership information to the federal government.
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Congress enacted the Corporate Transparency Act (“CTA”) in 2021 for the purpose of combating money laundering, tax fraud, and similar issues. Regulations under the CTA followed in 2022. Broadly, the CTA requires that all “reporting companies” in the United States submit information about their beneficial owners to the US Financial Crimes Enforcement Network (“FinCEN”).
“Reporting companies” are defined to likely include virtually every US corporation, LLC, and other entity formed under state law, as well as foreign entities registered to do business in the US. However, the definition does not include entities which are otherwise regulated (i.e., banks, investment companies, utilities, etc.), publicly traded companies, non-profits, and large companies (more than 20 employees and more than $5 million in revenue).
Reporting companies are required to identify each beneficial owner by full legal name, date of birth, address, and government-issued ID. A “beneficial owner” of a reporting company includes any person or entity exercising substantial control, or owning or controlling at least 25% of the ownership interests (with certain exceptions).
The upshot of all this: as of January 1, 2024, virtually every US early-stage startup, professional services entity, small holding company, and similar is now likely required to report beneficial ownership information to FinCEN. The initial reporting deadline is January 1, 2025 for entities created before 2024. Entities created after January 1, 2024 are required to report beneficial ownership information within 90 days of formation. (After January 1, 2025, this period will shorten to 30 days). Changes – e.g., new directors or stockholders – must be reported within 30 days. Reporting violations are subject to civil and/or criminal penalties.
While the scope of the requested information may raise privacy concerns, it should be noted that FinCEN’s beneficial ownership database is not publicly available. Under the CTA, FinCEN may only disclose beneficial ownership information to (1) a federal law enforcement agency; (2) a state, local, or tribal law enforcement agency (if authorized by a court order); (3) a federal agency on behalf of a foreign country (if pursuant to an international agreement); (4) a financial institution for customer due diligence purposes and if authorized by the reporting company; or (5) an appropriate regulator.
Given the scope of these regulations, we suggest reviewing FinCEN's Small Entity Compliance Guide. Entities required to submit beneficial ownership information may do so directly to FinCEN at https://www.fincen.gov/boi.
Cover image by Adam Clarkson, licensed under the Creative Commons Attribution-NoDerivs 2.0 License.