New reporting requirements for business owners

As of Jan. 1, 2024, small business entities will be required to disclose more information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN). This new reporting requirement was enacted Jan. 1, 2021, as part of the Corporate Transparency Act (CTA)—which is itself part of the Anti-Money Laundering Act of 2020.

The CTA directed FinCEN to create a central database and collect information on individuals behind “Reporting Companies”— entities that have filed for organization or are registered to do business in the U.S. The new requirements are intended to help law enforcement catch money launderers, terrorists, and other financial criminals. More than 32 million business entities are expected to be impacted by the new reporting requirement.

Broadly speaking, a Reporting Company is any company with fewer than 20 employees or less than $5 million in gross revenue. Most entities with less than 20 employees and $5 million in revenue will likely have to report. The majority of LLCs, LPs, and other closely-held entities like C and S corporations are likely to be considered Reporting Companies. Large operating companies, registered investment advisors, nonprofit organizations, insurance companies, accounting firms, and other select entities are generally exempt.

What Information is Required?

Under the new rules, a Reporting Company will be required to provide certain information about itself:

• Full name of the company, including any trade names
• Current street address
• Jurisdiction information
• Tax ID number (TIN)

In addition, Reporting Companies must also furnish information about their “beneficial owners”—those individuals who exercise “substantial control” over a Reporting Company—including:

• Full legal name
• Date of birth
• Current address
• Identification number from a picture ID or FinCEN identifier number (FIN)

If ownership interest is held through a trust, the information for certain specific individuals (i.e., grantor, beneficiaries, trustees) may also need to be reported. The individual who was primarily responsible for directing or managing the filing of paperwork to create or register a Reporting Company must also submit a disclosure.

When Do I Need to Act?

These reporting requirements went into effect Jan. 1, 2024. Reporting Companies that were created or registered prior to Jan. 1, 2024, will have until Jan. 1, 2025 to file their initial reports. Reporting Companies formed on or after Jan. 1, 2024, and before Jan. 1, 2025, must file the initial reports within 90 days of the company’s formation. Reporting Companies registered after Jan. 1, 2025, will have 30 days to file their initial reports.

How Often Will I Have to Submit a Report?

This is a one-time filing requirement; affected entities will only need to submit a new report if there is any change to the information submitted in the original report, and must do so within 30 days. Likewise, Reporting Companies must submit a corrected report within 30 days of discovering an inaccuracy.

What Are the Penalties For Noncompliance?

Penalties can be steep. Failure to report complete information or submitting a report with false information to FinCEN can lead to daily fines of $500, up to a maximum of $10,000, and imprisonment for up to two years.

What If I Have More Questions?

Our Financial Planning team is here to help. For general questions, give us a call at 310-556-2502, email info@westmount.com, or reach out to your Westmount advisor directly. More information about the new rule can also be found on FinCEN’s website.