7 Things You Should Know About the New Federal Reporting Requirement

If you own a business, get ready. There’s a new federal reporting requirement for business owners, and you don’t want to ignore it. If you do, the penalties are high.

Here are seven key things to know.

What is the new requirement?

Effective Jan. 1, more than 32 million business owners need to complete a special form called the Beneficial Ownership Information Report. You’ll need to file it with the Financial Crimes Enforcement Network (FinCEN), an arm of the U.S. Department of the Treasury.

The form is required as part of the 2021 Corporate Transparency Act. This act aims to reduce money laundering and the concealment of illicit funds by targeting shell companies and many other entities.

Who needs to file the Beneficial Ownership Information Report?

Entities including corporations, pass-throughs, partnerships, estate and benefit plans, and foreign companies registered to do business in any U.S. state or Indian tribe will have to share information about their beneficial owners. Sole proprietorships are not included.

Beneficial owners are generally shareholders who own at least 25% of an entity, which may include:

  • Profit interests
  • Options
  • Warrants
  • Other instruments like convertible notes

Besides shareholders, beneficial owners also include people that exercise substantial control over an entity. This means senior officers, including:

  • President
  • Chief financial officer
  • General counsel
  • Chief executive officer
  • Chief operating officer

Any other officer who performs a similar function to those listed above may be required to file a report. This includes anyone with the authority to appoint or remove officers or a majority of directors of the reporting company. It could also include an important decision-maker for the reporting company, or any other individual with substantial control.

It’s important to note that there may be more than one beneficial owner of a company. Filings also need to be updated when a beneficial owner has a change of address or marital status or obtains a new driver’s license. There’s no fee to file this report.

There are 23 types of businesses that are exempted from this rule. They include:

  • Banks
  • Credit unions
  • Tax exempt entities
  • Large operating companies (generally companies with more than 20 U.S.-based employees and revenues over $5 million)

Many of these entities are exempt because they’re providing similar information via other means. Review the full list in the FinCEN’s Small Entity Compliance Guide.

What information is required?

The information you need should be easy to obtain. It includes your company’s legal and trade names, or your “doing business as” name, and street address (post office boxes are not allowed). You’ll also need to include the state where your company was formed along with relevant tax and employer identification numbers.

In addition, you’ll need to provide an image of your articles of incorporation. If you can’t find this, you can likely obtain it from your state.

Each beneficial owner will need to provide their full legal name, birthdate, and home address (again, post office boxes are not allowed). They’ll also need to provide an image of either an unexpired passport, driver’s license, or document issued by a state, local government, or Indian tribe.

What’s the due date and where do I report?

Filings for existing companies must be completed by Jan. 1, 2025. For new entities created after Jan. 1, 2024, reports are required within 90 days. You can file your reports electronically on FinCEN’s website, where you will get an electronic receipt.

How secure is my information?

Under the Corporate Transparency Act, FinCEN is allowed to permit federal, state, local, and tribal officials, as well as certain foreign officials who submit a request through a U.S. federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.

Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company.

Otherwise, FinCEN will store information in a secure, non-public database. FinCEN uses the same information security methods and controls that are typically used in the Federal government to protect non-classified but sensitive information systems.

What happens if I don’t comply?

The penalties are steep. You could incur fees up to $500 a day, up to $10,000, and up to two years in jail (per occurrence) if you intentionally provide incorrect information.

Where can I find more information?

I strongly recommend working with an experienced certified public accountant, attorney or business advisor to complete this report. It’s also important to ignore the inevitable solicitations you’ll receive from firms that claim to be experts in this area. Seek out a professional you know, or ask for a referral.

Check out these essential resources on this new reporting requirement: