Starting on Jan. 1, 2024, some companies will have to report certain information about their ownership. Which companies and which information? That’s where it can get confusing. You have to delve into the Corporate Transparency Act.
According to the government’s Financial Crimes Enforcement Network site, CTA “establishes uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States.” A beneficial owner, according to the SEC’s investor site, is one who “holds shares indirectly, through a bank or broker-dealer. Beneficial owners holding their shares at a broker-dealer or bank are sometimes said to be holding shares in ‘street name.’ The majority of U.S. investors own their securities this way.”
The CTA’s goal, according to FinCEN, is to “provide essential information to law enforcement, national security agencies, and others to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the United States.”
What do companies have to do?
According to FinCEN, companies now have to issue beneficial ownership information. As it says, “Under the rule, a beneficial owner includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines the terms ‘substantial control’ and ‘ownership interest.'”
The rule applies to a corporation, limited liability company or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
When filing BOI reports with FinCEN, a company must report four pieces of information about each of its beneficial owners: name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document. Also, companies created after Jan. 1, 2024, must provide the four pieces of information and document image for company applicants.
Are there any exemptions?
Yes! In fact, FinCEN lists 23 exemptions, and your company might fall into one of them. Check them carefully before you gear up for reporting requirements that may not apply to you. Probably the most relevant of these is the provision that the reporting requirement does not apply to “large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States.”
What about a very small company, such as a sole proprietorship? Those entities are probably exempted from the BOI requirements, as they don’t register in the first place.
In general, FinCEN believes that sole proprietorships, certain types of trusts, and general partnerships in many, if not most, circumstances are not created through the filing of a document with a secretary of state or similar office. In such cases, the sole proprietorship, trust, or general partnership would not be a reporting company under the final rule. Moreover, where such an entity registers for a business license or similar permit, FinCEN believes that such registration would not generally “create” the entity, and thus the entity would not be created by a filing with a secretary of state or similar office.
This is just a summary. Your best bet? Contact a qualified financial professional to see if your entity is covered or exempted, and what your requirements may be.