A Guide to Beneficial Ownership

To help fight financial crime and terrorist financing, the U.S. Department of Treasury passed a new regulation making it mandatory for financial institutions to collect information on beneficial owners of legal entity clients. This regulation was enacted to provide greater transparency into company structures and better protect the U.S. financial system.

Understanding Beneficial Ownership.

Beneficial Ownership refers to the individuals who ultimately own or control a legal entity, such as a company. The goal of Beneficial Ownership Information Reporting is to enhance transparency and combat financial crimes, such as money laundering and terrorism financing. By identifying the true owners behind a business, authorities can ensure that financial transactions are conducted with integrity.

Compliance Mandate.

The Financial Crimes Enforcement Network (FinCEN) has implemented regulations mandating U.S. businesses to report their beneficial ownership information. The Corporate Transparency Act passed in 2020, requires certain companies to disclose their beneficial ownership details to the government. This includes information about individuals who directly or indirectly own or control 25% or more of the company.

Who is Affected.

If your business falls under the following categories, you are likely subject to Beneficial Ownership Information Reporting:

  • Corporations, Limited Liability Companies (LLCs), and similar entities formed under state law.
  • Companies that are not publicly traded on stock exchanges.
  • Entities with 20 or fewer employees and annual gross receipts or sales of less than $5 million.

Reporting Obligations.

To comply with Beneficial Ownership Information Reporting, business owners need to provide specific details about the beneficial owners, including their full legal name, date of birth, address, and an identification number (such as a driver’s license or passport number).

Key Deadlines.

They key deadlines for this new rule are as follows:

Effective January 1, 2024, domestic or foreign reporting companies created or registered to do business in the United States before the rule’s effective date of January 1, 2024, the Reporting Rule requires that they file initial BOI reports with FinCEN by January 1, 2025.  Entities created or registered on or after January 1, 2024, and before January 1, 2025, will be required to file initial BOI reports with FinCEN within 90 calendar days from entities created or registered date.   Entities created or registered on or after January 1, 2025, will be required to file initial BOI reports with FinCEN within 30 calendar days from entities created or registered date.

The Benefits of Compliance.

There are several advantages to embracing Beneficial Ownership Information Reporting:

  • Enhanced Transparency: Demonstrating a commitment to transparency can build trust with customers, partners, and investors.
  • Reduced Risk: Compliance helps mitigate the risk of legal and financial consequences associated with non-compliance.
  • Global Standards: Many countries are adopting similar regulations, aligning with global efforts to combat financial crimes. Complying with domestic regulations can also facilitate international business operations.
  • Credibility: Compliant businesses are viewed as responsible corporate citizens, potentially attracting more customers and investment.

As a business owner, it is important to navigate the complexities of Beneficial Ownership with diligence. By understanding the regulatory landscape, meeting reporting obligations, and staying informed about deadlines, you can ensure your business remains in good standing while contributing to a more transparent and secure financial environment. Compliance is not just a legal requirement—it’s a step toward a more accountable and resilient business ecosystem. To learn more about Beneficial Ownership, click here.