If you own or are considering starting a business entity like a corporation, LLC, or partnership, you need to be aware of significant new reporting requirements that took effect in 2023. The Corporate Transparency Act mandates that most companies file a beneficial owner report with the Financial Crimes Enforcement Network (FinCEN) disclosing their ownership and control structure.
The goal of the Beneficial Owner Information Report is to create a national registry of corporate ownership to combat money laundering, tax evasion, and other illicit financial activities. Previously, it was relatively easy to obscure the true owners behind opaque company structures, prompting regulators to act.
Under the new rules, entities must report any individual who exercises substantial control over the company or who owns 25% or more of its equity interests, referred to as beneficial owners. Specific identifying details like names, birthdates, addresses, and identification numbers are required for each beneficial owner.
Companies formed before January 1, 2024 have until January 1, 2025 to file their initial report. Any changes in beneficial ownership must be reported within 30 days. For new companies formed after January 1, 2024, the report is due within 30 days of formation.
Exempt entities include large operating companies already reporting ownership to the SEC or other regulators, banks, credit unions, investment companies, public utilities, churches, and firms with over $5 million in gross receipts and 20+ full-time employees. However, most smaller businesses will need to comply with the new reporting mandate.
The penalties for willfully providing false or fraudulent information are steep - up to $500,000 in fines and/or up to two years in prison. Anyone who willfully fails to report beneficial ownership information faces civil penalties up to $500 per day the violation continues with a $10,000 cap.
While the new requirements may seem onerous, the intent is to shine a spotlight on shadowy corporate ownership structures sometimes used for nefarious purposes. If you have an existing business or are starting a new one, be sure to familiarize yourself with these rules and file a timely and accurate report to avoid stiff penalties down the road.
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