January 12, 2024

The New Beneficial Ownership Information Reporting for Small Businesses

Re: The New Beneficial Ownership Information Reporting for Small Businesses

Owners of small businesses need to take notice and get educated on a new requirement starting in 2024 that will require certain entities to report entity and ownership information. Impacted entities include existing and newly formed corporations, limited liability companies (LLCs), limited partnerships, and other entities that file formation papers with a state’s Secretary of State’s office (or similar government agency). Entities will be required to file a report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) providing specified information regarding the entity and the entity’s “beneficial owners.”

This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. Unfortunately, this will impose burdensome reporting requirements on most businesses. Below is a synopsis of important items to consider. For a more detailed guide, please see the FinCEN website: https://www.fincen.gov/boi.

Important Dates to Remember:

– Initial report of newly formed entities after January 2024: file the initial report no later than 90 days from the entity’s formation.

– Initial report of exiting entities formed prior to January 2024: file the initial report no later than January 1, 2025 (possibly changing).

Penalties for non-filing or late filing:

– Up to $500 per day until the violation is remedied

– Fines of up to $10,000 and/or two years imprisonment stemming from criminal charges

– Penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report

Who is an impacted entity?

– Reporting companies can be both domestic and foreign with 23 types of entities exempt from reporting. Please see the resources at www.fincen.gov for the detailed exemptions. One exemption is for a large operating company. To be considered large, there are six criteria that must be satisfied including having more than 20 full time employees in the US and more than $5 million in gross receipts.

Who is a beneficial owner?

– Owners who directly or indirectly own more than 25% of the entity’s ownership interests

– Individuals that exercise substantial control over the reporting company (even if they do not actually have an ownership interest). This includes senior officers of the business as well as those individuals who are involved in any significant business decisions (e.g., board members).

What type of Information is reported?

Entities must provide the following for the entity and its beneficial owners:

– Entity full legal name and any trade names/DBAs

– US Address and jurisdiction of formation

– Federal EIN or ITIN

– Beneficial owner full legal name and date of birth

– Owner current residential address

– Owner Federal ID number with image of a legal non-expired document such as a US passport, state driver’s license, State ID, or foreign passport.

This is a developing story with current legislation in the works to potentially extend deadlines for existing entities. Additionally, we still do not have forms available on the FinCEN website. Once we have more information, we will send an update. For now, please note this will be a requirement for any future entities you are thinking of starting in 2024 with a very short turnaround to be in compliance with these new reporting requirements.