Anti-money laundering laws and new reporting requirements are on the horizon for many businesses, thanks to the Corporate Transparency Act.
Starting in 2024, many small businesses will be required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to build a national database for national security and law enforcement agencies to aid in the prevention of using of shell companies for criminal activity.
Will your company be affected? Maybe
Both domestic and foreign reporting companies are required to file reports. A company is considered a reporting company if a document was filed with the secretary of state or similar office to create or register the entity. Corporations (including S corporations), LLCs and other entities formed through the SOS are subject to the reporting requirements.
But because sole proprietorships, trusts and general partnerships do not require the filing of a formal document, they generally are not considered a reporting company and will not have a filing requirement. Foreign companies are required to file reports if they are registered under state law.
Some companies, like large operating companies, are exempt from reporting ownership information to a governmental authority. This entity is defined as having:
- More than 20 full-time U.S. employees
- An operating presence at a physical office within the U.S.
- More than $5,000,000 of U.S.-sourced gross receipts reported on its prior year federal income tax return.
If your company meets these qualifications, you are not subject to the new reporting requirements.
Terms you need to know
Beneficial owners. Beneficial ownership information (BOI) must be reported for the reporting company’s beneficial owners and (for entities formed or registered after 2023) company applicants.
Beneficial owners of a reporting company include:
- Any individual who exercises substantial control over the reporting company
- Any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company.
Individuals with substantial control are those with substantial influence over important decisions made by the reporting company. Senior officers (president, CFO, general counsel, CEO, COO and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members.
BOI includes an individual’s full legal name, date of birth, street address and a unique ID number. The unique ID number can be from a nonexpired U.S. passport, state driver’s license, or other government-issued ID card. If the individual does not have any of those documents, then a nonexpired foreign passport can be used. An image of the document showing the unique ID number must also be included with the report.
Company applicants. The company applicant is the person who actually files the document that creates or registers the reporting company (e.g., an attorney). Company applicants must provide the same information that is required of beneficial owners, but only if the reporting company is formed or registered after 2023.
Because of the difficulty in tracking down information about company applicants for reporting companies that have been in existence for a number of years, reporting companies formed or registered before 2024 do not have to supply BOI for their company applicants.
Mark your calendar to get ahead of reporting requirements
For existing reporting companies created or registered before 2024, your initial report is due by January 1, 2025. For those created or registered after 2023, the initial report is due 30 days after the entity’s creation or registration.
If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30 days of the change. The penalties for willfully failing to file both initial and updated reports are steep — $500 per day that the report is late, up to $10,000, and imprisonment for up to two years.
If you have any questions about these new reporting rules and how they impact your business, count on Magone & Company as a knowledgeable resource. Reach out today at (973) 301-2300.