Written by: Bill Scarborough, Tax/SEC Director, and Stephen Leonard, Tax Partner
Issue: In 2024, many entities (small businesses created in the U.S or registered to do business in the U.S.) are required to report information about their beneficial owners to the U.S. federal government’s Financial Crimes Enforcement Network (FinCEN). The new FinCEN beneficial ownership filing requirement covers many businesses in the U.S. and imposes a completely new reporting regime. It is important for all reporting companies to begin planning now for submission after the first of the year.
Summary of Reporting Requirement: Beneficial owners are defined as individuals who own or control a company. According to FinCEN, a beneficial owner is an individual who either directly or indirectly: (1) exercises “substantial control” over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.
Measures of Substantial Control: Individuals demonstrating substantial control can do so through various means, including holding senior officer positions, having authority to appoint or remove officers or directors, being key decision-makers, or possessing other forms of substantial control, detailed in FinCEN’s Small Entity Compliance Guide.
Reporting Entities: There are two types: (a) Domestic reporting companies; Those that are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States. (b) Foreign reporting companies; Those entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office. See question C.1 under FinCen’s FAQs: Beneficial Ownership Information Reporting | FinCEN.gov
Exempt Entities: U.S. Exempt entities, including sole proprietorships, general partnerships, and specified entities like banks and insurance companies, are not required to file. See question C.2 under FinCEN’s FAQs for the list (above link.)
Reporting Deadlines: No one needs to report beneficial ownership information to FinCEN until January 1, 2024. A reporting company created or registered on or after January 1, 2024, will have 30 days to file its beneficial report. A reporting company created or registered on or after January 1, 2024, will have 90 days to file its beneficial report (30 days starting in 2025).
Consequences of Non-Compliance: Failure to comply with reporting obligations can lead to civil and criminal penalties for businesses and responsible individuals.
Required Information: Reporting companies must provide details such as the name, date of birth, residential address, and government-issued identification number for each beneficial owner.
Filing Process: Filing will occur through an online portal on the Beneficial Ownership Information Report (BOIR) form through FinCEN’s website (not yet available.)
Assistance with Filing: According to their website, FinCEN expects that many, if not most reporting companies will be able to submit their beneficial ownership information to FinCEN on their own using the guidance FinCEN has issued. Reporting companies that need help meeting their reporting obligations can consult with professional service providers such as lawyers or accountants. The form to report beneficial ownership information is not yet available. Once available, information about the form will be posted on the webpage. The system is currently being developed and will be available before your report must be filed.
At this time, we advise clients to submit the reporting themselves. Although, Hancock Askew & Co., LLP can provide advice to answer questions and assist with necessary information to help reporting companies submit their beneficial ownership information to FINCEN. We will provide more direction when it becomes available.