Regulations adopted by the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act require most companies formed or registered to do business in the United States before January 1, 2024 to file an initial beneficial ownership information report with FinCEN by January 1, 2025, unless they are exempt.
If you are required to file a report and have taken advantage of this extended filing deadline, it is time to begin preparing to make the filing. While companies formed or registered during 2024 are required to file an initial beneficial ownership information report within 90 days after the date they receive notice of their formation or registration (or such information becomes publicly available), this period will be shortened to 30 days for companies formed or registered on or after January 1, 2025.
The first step to comply with the Corporate Transparency Act is determining whether your company qualifies for an exemption from those requirements. FinCEN’s regulations specify 23 categories of companies that are exempt. A list of the exemptions can be found in FinCEN’s Small Entity Compliance Guide. If a company qualifies for one of these exemptions, it will not be required to file a beneficial information ownership report unless its exempt status changes in the future.
A company’s beneficial owners are those natural persons who directly or indirectly own or control 25% or more of its ownership interests or exercise substantial control over the company. FinCEN’s rules defining the ownership or control of ownership interests and substantial control can be complex. The application of those definitions for companies other than those with a simple ownership structure will require a detailed analysis and may involve interpretative issues that have not been clearly addressed, if at all, by FinCEN.
A company will need to obtain the required information from its beneficial owners, who may be unavailable or reluctant to provide that information, which can require substantial time and effort. In addition, the beneficial ownership reports must be filed with FinCEN electronically, which has been a challenge for some companies.
In general, if there are any changes in the future to the information contained in a beneficial ownership information report, an updated report must be filed within 30 days after the change. A reporting company will need to have a system in place to make sure it receives timely notice of any such change from its beneficial owners so it can comply with this requirement.
Willful failure to comply with the Corporate Transparency Act’s reporting requirements can result in civil and criminal penalties, including a fine of up to $10,000 and imprisonment for up to two years.
A detailed analysis of the Corporate Transparency Act’s reporting requirements is included on FinCEN’s website as are guides and FAQs.
If you or your business have legal questions or concerns regarding business law or related matters, contact attorney Jeffrey A. Franklin at Prince Law Offices.
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