A recent regulation from the US Treasury requires companies to disclose ownership details as a measure against money laundering through shell companies. The FinCEN beneficial ownership rule will go into effect on January 1, 2024. It requires qualifying businesses to disclose their beneficial owners, defined as individuals with substantial control over the company or 25% ownership.
FinCEN, part of the US Department of the Treasury, aims to prevent financial crimes. The rule applies to most businesses, including corporations and LLCs, with exemptions for federally regulated entities and larger operating companies. So which businesses need to report?
Which businesses need to report under FinCEN’s beneficial ownership rule?
Companies that must report their beneficial ownership information to FinCEN fall into two categories: domestic reporting companies and foreign reporting companies.
A domestic reporting company is characterized as:
- A corporation
- A limited liability company (LLC)
- Any other entity formed through the submission of documentation to a secretary of state or an equivalent office, as per the regulations of a state or Indian tribe.
A foreign reporting company encompasses:
- A corporation, LLC, or other entity established under the legal framework of a foreign nation
- Registered to conduct operations in any U.S. state or Tribal jurisdiction through the submission of documentation to a secretary of state or equivalent office, following the laws of a U.S. state or Indian tribe.
If your company was established or registered by submitting documentation to a state or Indian Tribal-level office, like a secretary of state, either for its creation or to permit business activities as a foreign entity, it falls under the category of reporting companies, unless an exemption is applicable. The Corporate Transparency Act exempts 23 types of entities from the beneficial ownership information reporting requirement. A list of exceptions can be found in FinCEN’s Beneficial Ownership Information Reporting FAQs.
In these definitions, “state” denotes any U.S. state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other U.S. commonwealth, territory, or possession.
How should businesses report under the new beneficial ownership rule?
The short answer is that no one knows yet.
Businesses will be required to report their beneficial ownership information to FinCEN through an electronic filing system hosted on FinCEN’s official website. The development of this system is currently underway and is expected to be accessible before the initial filing deadline.
Notably, FinCEN has communicated that there will be no fee to submit your beneficial ownership information.
SixFifty can help with the FinCEN beneficial ownership rule
In the meantime, businesses should go through the process to determine whether they will need to report their beneficial ownership information to FinCEN. SixFifty can help.
The legal experts at SixFifty have created a FinCEN Beneficial Ownership Worksheet to help you determine whether your business needs to comply with the FinCEN beneficial ownership rule. This tool will walk you through a series of questions about your business just like a lawyer would. We then map your answers onto the FinCEN framework to let you know whether you need to report your ownership structure.
The end product is a document that shows that you took the obligation seriously, whether you need to comply or not. You should print, sign, and retain the completed worksheet for recordkeeping purposes. Showing that you tried in good faith to determine whether to comply can help you to avoid serious fines and penalties.