You may have heard recently that almost all businesses have a new reporting requirement and that it is due January 1, 2024. While that is true on the surface there is much more to the requirement and the due date. I will break down the who, what, when and why and suggest a where as well. Let’s start with the why.
The Secretary of the Treasury, Janet Yellen, says that “Corporate anonymity enables money laundering, drug trafficking, terrorism and corruption.” The solution was to create a centralized database of beneficial ownership information, according to Yellen. There is significant opposition to the database and the Small Business Administration (SBA) has filed a lawsuit to prevent implementation. Many other organizations are lobbying and fighting the implementation of this as the impact to legitimate, law-abiding businesses and citizens is exposing their private information to potential scrutiny. Additionally, banks already collect this information in the process of opening bank accounts.
The reporting requirement is effective January 1, 2024; however, already active businesses have until the end of the year to report. That means for current businesses you have until January 1, 2025, to report. Newly formed businesses have 30 days to fulfill the filing requirement. A reporting company also has to report any changes in ownership within 30 days. Along with the AICPA, many of our peers, and organizations who provide this filing or agent of record services, we are recommending that you wait to file until second quarter of 2024. That will allow time to develop appropriate services to report with appropriate security and allow time for the lawsuit and opposition to the law play out in court.
The information is fairly easy to gather for most organizations. The information needed is the following:
- Name, Date of Birth and personal address of each beneficial owner
- The number from a non-expired driver’s license, passport or document issued by a state and a copy of it
- Name and address of the company
There are two types of reporting companies according to the Beneficial Ownership Information Reporting Rule Fact Sheet | FinCEN.gov. The types are extremely broad: a domestic reporting company and a foreign reporting company. These include corporations, LLCs or any entity created by filing a document with a secretary of state or similar office. This does include organizations that are classified as an S-Corp. It may exempt some types of partnerships as they may not need to be reported to a secretary of state or similar office.
A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25 percent of the company. There are specific definitions, and the substantial control part is intentional to prevent individuals to hide behind ownership. Substantial control is making (or being able to make) important decisions on behalf of the organization and if you aren’t sure we recommend speaking with your corporate attorney.
There are exemptions to this reporting requirement. First, certain trusts that are not created with a filing to a secretary of state are exempt. Companies who have more than 20 full-time employees and more than $5 million in revenue and a physical presence in the United States are exempt. Companies that report to the SEC, banks, registered-broker-dealers, and insurance companies are all exempt. Non-Profit organizations are also exempt.