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Beneficial Ownership and the Corporate Transparency Act

By Dennis McNamara, CFP®, CHFC®, AIF®, CSLP®

Posted on 

February 5, 2024

 | 

SECURE 2.0 Act

With each new year we welcome an array of new laws and regulations. A notable inclusion in 2024 is the Beneficial Ownership reporting requirement for small businesses, mandated under the Corporate Transparency Act.

Let’s delve into the specifics of this regulation and understand its implications.

Defining a Reporting Company:

Is your business a “reporting company” under this new law? If you answer ‘Yes’ to any of the following, you’re required to comply:

  • Is your business a corporation or a limited liability company (LLC)?
  • Was it established through a filing with a secretary of state or similar office in a U.S. State or Indian Tribe?
  • Has your business registered to operate in any U.S. State or Tribal jurisdiction through such a filing?

However, it’s important to note that there are 23 exemptions to this definition, including entities like securities reporting issuers, banks, credit unions, money transmitter businesses, investment companies, insurance companies, public utilities, and certain large operating companies, among others.

Identifying a Beneficial Owner:

A beneficial owner in this context is an individual who either:

  • Exerts significant control over a reporting company, OR
  • Holds or controls at least 25% of the ownership interests in such a company.

Exceptions to this definition include minor children, nominees, intermediaries, employees without significant control due to their employment status, inheritors, and creditors.

Understanding Substantial Control:

Substantial control can be identified in several ways:

  • Being a senior officer.
  • Having authority to appoint or remove key officers or a majority of the board of directors.
  • Being a key decision-maker.
  • Possessing any other form of significant influence over the company.
Determining 25% Ownership:

Ownership interests can be in various forms, like equity, stock, voting rights, capital or profit interests, convertible instruments, and options, among others.

Company Applicants:

First off, not all reporting companies are required to report their applicants to FinCEN.

If your company was registered to do business in the U.S. prior to January 1, 2024, you do not need to report your applicants.

If you register(ed) on or after January 1, 2024, you will have this requirement.

There are two categories of applicants:

  • Direct Filer: the person responsible for drafting and submitting the registration application.
  • Directs or Controls the Filing Action: not always required, with each reporting company having at most two such applicants.
Filing Deadlines:
  • Existing companies before January 1, 2024, must file by January 1, 2025.
  • Companies formed between January 1, 2024, and January 1, 2025, have 90 days post-registration.
  • Companies established on or after January 1, 2025, have 30 days post-registration.

Miss these deadlines, and you face a hefty fine of $500 per day.

Required Information for the Form:

For Reporting Companies:

  • Full legal and trade names.
  • Complete current U.S. address.
  • State of formation.

For Each Beneficial Owner and Company Applicant:

  • Full legal name.
  • Date of birth.
  • Complete current address.
  • A unique identifying number, jurisdiction, and an image of a valid document like a U.S. passport or state driver’s license.

Staying informed and compliant with these new requirements is crucial for your business. Visit FinCEN’s e-filing website for more details and to ensure you meet your reporting obligations.

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