New Rule: Is Your Company Exposed? Understanding FinCEN’s Ownership Reporting

The Financial Crimes Enforcement Network (FinCEN) has established new regulations for beneficial ownership information reporting, which took effect on January 1, 2024. These regulations serve as the latest in a series of U.S. efforts to combat illicit finance and enhance transparency within the financial system.

Entities Subject to Reporting: Corporations, S-Corporations, Limited Liability Companies, and any other entity that was created by filing a document with the SOS of their state or tribe. As a result of this wide net, many companies in the U.S. are required to report information about their beneficial owners to FinCEN​​​​​​. 

A beneficial owner is defined as an individual who either exercises substantial control over the reporting company or owns at least 25% of the company’s ownership interest. “Exercising substantial control” is a term yet to be defined but, for now, a common-sense approach to this analysis will likely take the day.

Information to be Reported: Reporting companies must disclose their name; trade name; address; state or tribal jurisdiction of formation; taxpayer identification number (TIN); information about each beneficial owner, including their full legal name, date of birth, address, and a unique identifying number; and information about the company applicant (i.e. the person who help register the entity if not the beneficial owner), including their full legal name, date of birth, address, and a unique identifying number​.

FinCEN Identifier (optional): Reporting companies and beneficial owners can obtain a FinCEN identifier, a unique number assigned by FinCEN, which can be used instead of providing detailed information​​.

 

Exemptions: Certain entities are exempt from these reporting requirements, including, but not limited to:

• financial institutions
• Companies subject to SEC registration
• Public utilities
• Insurance companies
• Other companies that are subject to outside regulation (like law firms!)
• Large operating companies. i.e. More than 20 employees (as defined by the IRS), and greater than $5M in US based GR, and physical office (cannot be a mailbox, shared space, residence, etc)

Compliance and Implementation: FinCEN published a compliance guide to assist small businesses in understanding and meeting their reporting obligations​​.

Reporting Deadlines: Companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial reports. Such companies are not required to provide information on their company applicant as it would be a tall order to chase down attorneys or companies used years ago to register the subject entity. 

Companies created or registered after January 1, 2024, must file within 30 days of creation or registration​​.

Ongoing Reporting: After the initial report, companies must update their beneficial ownership information within 30 days of any changes​​.

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