When the Corporate Transparency Act passed in 2021, it included new rules for reporting beneficial ownership that went into effect January 1, 2024. According to FinCEN, the purpose of the new rules includes strengthening “the integrity of the US financial system by making it harder for illicit actors to use shell companies to launder money or hide assets.”1 Boiled down, here are the who, what, when, and where facts that companies need to know:
- A beneficial owner is an individual who owns or controls at least 25% of a company or has substantial control over the company.2
- There are two types of reporting companies3:
- Domestic reporting companies 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.
- Foreign reporting companies are 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.
- Exemptions include:
- Legal entities not created by filing of a document with a secretary of state or similar office (example: Trusts).
- 23 categories of entities specifically exempted (example: federal/state entities; investment companies, issuers of securities register with the SEC).
- Large operating companies, defined as having 20 or more full-time employees, maintaining an operating presence at a physical office in the U.S. and filed a U.S. tax return in the previous year showing more than $5MM in gross receipt or sales from operations in the US.
- Reporting companies created or registered in 2024 will have 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective.
- Reporting companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial reports.
- Reporting companies created or registered on or after January 1, 2025, have 30 calendar days after receiving actual or public notice of their creation or registration becoming effective.
- Reporting companies will have to report beneficial ownership information electronically through via their website: www.fincen.gov/boi.
Be aware of recent fraudulent attempts to access information under the guise of this requirement. FinCEN has recently included an alert on their website advising that they do not send unsolicited requests, and any communications asking the recipient to click a link or scan a QR code are fraudulent and should be ignored. Visit the resources provided here for more complete information and requirements. Consult your tax and legal professionals for guidance.