While you were busy running your company, some new financial reporting requirements took effect, which may (or may not) require action on your part. As of Jan. 1, 2024, certain businesses must, under federal law, disclose their “beneficial owners” – or “movers and shakers,” if you will – to the Financial Crimes Enforcement Network (FinCEN). The new reporting is part of the 2021 Corporate Transparency Act (CTA) that aims to prevent anonymous corporate structures from serving as a front, enabling fraud, money laundering, and other illicit activities.
According to the U.S. Census Bureau, an estimated 141,000 Ohio firms fall into the reporting category.
Not sure if your company is one of them? Don’t worry. ARTBA has been following this issue closely, so here is what you need to know:
Who Needs to Report?
If your business is structured as a corporation, LLC, or any similar entity formed through filing documents with state authorities, you’re likely covered by the CTA. Notable exceptions include sole proprietors, certain types of trusts, and some general partnerships. Entities that are heavily regulated, like banks, insurance companies, and credit unions, along with large operating companies (LOCs) and inactive businesses, are also exempt. LOCs, for instance, must have more than 20 employees, $5 million in annual gross receipts, and a physical office in the U.S. to qualify for exemption.
Who Counts as a Beneficial Owner?
A beneficial owner is defined broadly under the CTA. This includes anyone who directly or indirectly owns or controls 25% or more of a company’s equity, or who exercises substantial control over the company. “Substantial control” can mean serving as a senior officer (like a CEO or CFO), having the power to appoint or remove senior officers, or having a significant say in key decisions, such as approving the budget or major investments.
What Information Must Be Reported?
Here’s what you need to disclose:
- For the company:
- Full legal name and any trade names.
- Principal business address (no P.O. Boxes allowed).
- Jurisdiction where the company was formed.
- Tax Identification Number (TIN/EIN).
- For individuals:
- Full legal name.
- Date of birth.
- Residential address.
- A unique ID number from an unexpired passport, driver’s license, or other government-issued ID, along with a copy of the document.
How to File?
Reports are submitted through FinCEN’s secure online system. It’s crucial to ensure all information is accurate. If any errors are found, businesses have 90 days to file corrections without facing penalties. The deadline for submitting information varies depending on when the company was formed:
- Companies created before 2024 have until Jan. 1, 2025, for the initial filing.
- Companies created after Jan. 1, 2024, but prior to Jan. 1, 2025, have 90 days after receiving notice of company formation.
- Companies created in 2025 and after have 30 calendar days after notice of formation received.
What If You Don’t Comply?
Non-compliance can result in significant penalties. Civil fines can reach up to $500 per day, and criminal penalties can include fines of up to $10,000 and imprisonment for up to two years. It’s essential to stay on top of these requirements to avoid these consequences.
This is just a quick overview of the new requirements. As always, it’s best to contact your legal or accounting professional to determine if the CTA applies to your firm and how to comply.
Prianka Sharma is the Vice President & Counsel for Regulatory Affairs for ARTBA. For additional information, visit FinCEN’s website, or contact Sharma at psharma@artba.org.
