As the New Year is officially here, so are a whole host of new laws and regulations that have come into effect. This week we will be discussing the Beneficial Ownership reporting required by small businesses under the Corporate Transparency Act. There has been a lot of chatter surrounding FinCEN’s new reporting requirements for small businesses and I’m going to try to clear up some of the noise.
There’s a lot to cover so let’s dive right in.
We’re going to begin with what the Reporting Rule requires. The report will contain information about the business entity, beneficial owners, and company applicants. We’ll go over each of those items.
Now, there are some businesses exempt from the reporting requirements, but the first place to start is determining if your business is a “reporting company”. Note, if you’re a sole proprietor, you can sit this one out, as you’re not required to file,
If you can answer “yes” to any of the following questions, you meet the definition and will be required to file unless you meet an exemption.
FinCEN has provided 23 exemptions to their definition of “reporting company”.
More details about each exemption can be found on Page 5 of the following link.
Now that you know if you’re a “reporting company”, you need to identify your business’ beneficial owners.
A beneficial owner is any individual who, directly or indirectly:
There is no minimum to the amount of beneficial owners that can be reported.
Two things to clear up, what does FinCEN mean when they say “substantial control” and what constitutes “ownership interests”.
An individual exercises substantial control when they meet any of the following criteria:
More information on substantial control indicators can be found here.
Reporting companies are required to report to identify all individuals who own or control at least 25% of the ownership interests in the company. Any of the following can constitute ownership interests:
Again, there are some exemptions to who qualifies as a beneficial owner.
A link to more information about these exemptions can be found here.
The last thing you may need to report is your company’s applicants.
Not all reporting companies are required to report their applicants to FinCEN.
Well, there are two categories of applicants, the first is a “direct filer”, the second is whoever “directs or controls the filing action”.
A direct filer must be identified by all reporting companies that have the company applicant reporting requirement.
The second category is not always required. No reporting company will have more than two company applicants, but every reporting company will have at least one.
The direct filer is defined exactly how it sounds - whoever drafts and submits the registration application to state reporting authorities when they are organizing your business.
The other possible company applicant is the individual who was primarily responsible for directing or controlling the filing of the creation or registration of the first registration document.
Reports will be accepted by FinCEN starting January 1, 2024. They must be filed electronically at the following link.
The report is due:
You’re not going to want to miss these deadlines. The penalty is $500.00 per day if you are not in compliance.
Here is the copied checklist from FinCEN. I’ve linked it here, and recreated it below for your viewing pleasure.
- Full legal name
- Any trade name or “doing business as” (DBA) name
- Report all trade names or DBAs
- Complete current U.S. address
- Report the address of the principal place of business in the United States, or, if the reporting company’s principal place of business is not in the United States, the primary location in the United States where the company conducts business
- State, Tribal, or foreign jurisdiction of formation
- For a foreign reporting company only, State or Tribal jurisdiction of first registration
- Internal Revenue Service Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN)
- If a foreign reporting company has not been issued a TIN, report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction
Each Beneficial Owner and Company Applicant:
- Full legal name
- Date of birth
- Complete current address
- Report the individual’s residential street address, except for company applicants who form or register a company in the course of their business, such as paralegals. For such individuals, report the business street address. The address is not required to be in the United States.
- Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
- U.S. passport
- State driver’s license
- Identification document issued by a state, local government, or tribe
- If an individual does not have any of the previous documents, foreign passport
All of this information is sourced from the FinCEN BOI Small Compliance Guide that I’ve linked to several times in this article. According to FinCEN this document should not require the assistance of industry professionals like accountants or attorneys to effectively file, but it may be a good idea to consult one if you are uneasy about filing this by yourself.
At the very least, I hope this information was helpful. Thanks, as always, for reading and we’ll see you next time.