In recent years, the issue of corporate transparency and the disclosure of beneficial ownership information has gained increasing attention worldwide. Beneficial ownership information refers to identifying details about individuals who directly or indirectly own or control a company. The United States has taken significant steps to address the lack of transparency in this area, leading to the enactment of the Corporate Transparency Act in 2021. This blog post aims to shed light on what beneficial ownership information is, why companies need to report it to the U.S. Department of the Treasury, and the reporting requirements.

  1. What is Beneficial Ownership Information?

Broadly speaking , a beneficial owner is an individual who owns 25% or more of the company or exercises substantial control over it. This includes shareholders, partners, or beneficiaries who have a significant stake in the company or exercise substantial control over its decision-making processes. Beneficial ownership information is crucial for understanding the actual owners of a company and preventing illicit activities like money laundering and corruption.

  1. Why Companies Must Report Beneficial Ownership Information to the U.S. Department of the Treasury?

Until recently, the lack of transparency regarding beneficial ownership information allowed criminals, corrupt officials, and other bad actors to hide their identities and launder illicit funds through shell and front companies. This lack of transparency created an uneven playing field for honest U.S. businesses and made it challenging for law enforcement to track and prosecute criminal activities.

In response to these issues, Congress enacted the Corporate Transparency Act, which requires certain U.S. and foreign entities to report their beneficial ownership information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). By collecting and sharing this information with authorized users, FinCEN aims to hinder bad actors from concealing their ill-gotten gains.

  1. When Should Companies Report Beneficial Ownership Information?

Companies are not required to report beneficial ownership information until January 1, 2024. FinCEN is not currently accepting any beneficial ownership information reports before this date.

    • Reporting Deadlines for Companies Created or Registered Before January 1, 2024

Companies created or registered before January 1, 2024, will have until January 1, 2025, to file their initial beneficial ownership information report.

    • Reporting Deadlines for Companies Created or Registered On or After January 1, 2024

Companies created or registered on or after January 1, 2024, will have 30 days to file their initial beneficial ownership information report. The 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective or after a public notice of its creation or registration by a secretary of state or similar office, whichever is earlier.

  1. Fee for Submitting a Beneficial Ownership Information Report

There will be no fee for submitting a beneficial ownership information report to FinCEN.

  1. Companies Required to Report Beneficial Ownership Information

Certain companies, referred to as “reporting companies,” will be required to report their beneficial ownership information to FinCEN. Reporting companies include domestic reporting companies (e.g., corporations, LLCs, or entities created by filing documents with a secretary of state or similar office) and foreign reporting companies (entities formed under foreign law and registered to do business in the U.S.).

  1. Exemptions / Exclusions from Reporting Requirement

The Corporate Transparency Act exempts specific types of entities from the beneficial ownership information reporting requirement. Some exempt entities include certain types of securities reporting issuers, U.S. governmental authorities, certain types of banks, and regulated public utilities, among others. Companies falling under these exemptions do not need to report their beneficial ownership information. While there are 23 different type of companies excluded from the reporting requirements below are three of the more common types of companies that are excluded from the reporting requirements.

    • Inactive Entities: Entities in existence on or before January 1, 2020, are exempt from reporting requirements.
    • Tax-Exempt Entities: Tax-exempt entities and entities assisting them are also excluded from reporting.
    • Large Operating Companies: Companies with over 20 full-time employees, more than $5,000,000 in gross receipts or sales, and a physical office in the US are exempt.
  1. Definition of Beneficial Owner

A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls 25 percent or more of its ownership interests. Substantial control refers to the power an individual may exercise over important decisions made by the company. A senior officer of the company is also considered to have substantial control.

  1. Information Required for Reporting Beneficial Owners and Company Applicants

For each beneficial owner and company applicant, reporting companies must provide their names, dates of birth, addresses, and unique identifying numbers from an acceptable identification document (e.g., U.S. driver’s license, U.S. government-issued passport). An image of the identification document associated with the unique identifying number must also be submitted.

  1. Access to Reported Beneficial Ownership Information

FinCEN may disclose reported beneficial ownership information to specific requesters, such as U.S. federal agencies engaged in national security, intelligence, and law enforcement activities, state and local law enforcement agencies with court authorization, and certain foreign law enforcement agencies through U.S. federal agencies.

The Corporate Transparency Act’s implementation marks a significant step towards enhancing corporate transparency and preventing illicit financial activities in the United States. By understanding what beneficial ownership information is and complying with reporting requirements, companies can contribute to the fight against financial crimes and promote a more level playing field for legitimate businesses. Beneficial ownership reporting is set to begin on January 1, 2024, and will provide valuable information for law enforcement and financial institutions in their efforts to safeguard the U.S. financial system.