On July 24th, FinCEN hosted a call to raise awareness about the new beneficial ownership reporting requirements for small businesses. FinCEN representatives on the call stated that criminals have used American shell companies to hide their illicit gains for far too long. The bipartisan Corporate Transparency Act was enacted in 2021 to curb illicit finance. As a part of this, FinCEN know requires companies doing business in the US to report information about their beneficial owners. This is not an annual requirement and needs to only be submitted once unless information is updated. FinCEN believes this requirement will make business more secure. This rule is effective as of January 1, 2024. 

On this call, FinCEN representatives answered a number of commonly asked questions and clarified misconceptions regarding the beneficial ownership reporting requirement. The FinCEN representatives said the easiest way to tell if a business is required to report their beneficial owners is if the business was created by filing with the Secretary of State or a similar office. If this is the case, that business needs to report. There are 23 exemptions to this rule. In many states, if you are a sole proprietor, you do not need to file with the Secretary of State and are not subject to the reporting requirements. FinCEN also emphasized that this rule is not a “gotcha” exercise. They said small business do not need an accountant or lawyer to properly fill out this requirement. FinCEN ensured that small businesses should not lose sleep over the new requirements. There are penalties for willful noncompliance to this requirement. FinCEN will find a company in willful noncompliance if there is evidence, they knew the obligations purposely shirked the responsibilities.

FinCEN clarified exactly what a beneficial owner is. It is defined as anyone who owns or controls at least 25 percent of the ownership interest, anyone who exercises substantial control over a reporting company, is a senior officer or C-suite executive, or any individual that is an important decision maker within the company. In addition to reporting beneficial owners, companies have to report company applicants. This is whoever directly filed the documents that created or first registered a domestic or foreign reporting company and the individual who was primarily responsible for directing or controlling the filing. There can be a maximum of two company applicants.

The reporting requirement went into effect January 1, 2024. Entities formed before this date have one full year to file. If information needs to be corrected or updated, this is required within 30 days. There are no regular or annual requirements beyond the initial filing. This report is free to file. FinCEN will continue to have similar events and webinars with third party intermediaries to educate the business community on these new requirements.

These new reporting requirements have different consequences for early-stage startups. With numerous rounds of funding, the 25 percent ownership threshold for the reporting requirements can change more frequently for startups. Startup companies must monitor potential triggering events such as change in name or principal place of business address, or changes to the personal information the company reported about its beneficial owners. Staying in compliance is especially crucial for small businesses and startups because failure to do so can lead to fines, inability to access funding and other legal issues.

To ensure your business remains in FinCEN beneficial ownership compliance, utilize these resources made available by FinCEN:

• Information on how to file a report
• Reporting Exemptions
• Filing Quick Reference Guide
• Detailed Step-by-Step Filing Instructions
• Small Entity Compliance Guide
• Beneficial Ownership Information FAQs
• Beneficial Ownership Reference Materials
• Reporting Demo Video

ACA will continue to monitor the situation and report on any changes or additional information that becomes available.