Beginning on January 1, 2024, many companies in the United States will have to report information about their beneficial owners (i.e., the individuals who ultimately own or control the company). They will have to report the information to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department, through an electronic filing system. However, in general, an entity that exists before January 1, 2024, will not be required to file its initial report until January 1, 2025.
Generally, any corporation, limited liability company, or any other entity that is created by filing a document with a secretary of state or similar office under state or tribal laws, or is formed under foreign law and registered to do business in the United States by filing a document with a secretary of state or similar office under state or tribal laws, is a reporting company that must disclose information regarding its beneficial owners and its company applicants to FinCEN under the Corporate Transparency Act.
FinCEN expects that small businesses and other businesses with simple management and ownership structures will be the majority of reporting entities. FinCEN also expects reporting companies to include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships.
Due Dates for Filing
Domestic reporting companies created before January 1, 2024, and foreign reporting companies registered before January 1, 2024, must file their initial report with FinCEN no later than January 1, 2025.
Under the statute, a domestic reporting company created on or after January 1, 2024, must file its initial report within 30 calendar days of the earlier of the date when (1) it receives actual notice that its creation is effective or (2) a secretary of state or similar office first provides public notice that the company has been created. Similarly, a foreign reporting company created on or after January 1, 2024, must file its initial report within 30 calendar days of the earlier of the date when (1) it receives actual notice that it is registered to do business or (2) a secretary of state or similar office first provides public notice that the company has been registered to do business. However, FinCen has extended the initial report filing deadline to 90 calendar days for entities created or registered on or after January 1, 2024, and before January 1, 2025, to give those entities more time to understand the reporting obligation and collect the necessary information to complete the filing. Entities created or registered on or after January 1, 2025, have 30 calendar days to file their initial reports.
A reporting company must file an updated report within 30 calendar days after any change occurs to previously submitted information concerning the company or its beneficial owners.
Willful failure to report or update beneficial ownership information, or willful providing of false or fraudulent information, may result in a civil penalty of up to $500 per day, and a criminal penalty of up to $10,000 and/or imprisonment of up to two years. A safe harbor from these penalties may apply if the person who filed the report has reason to believe that the report contains inaccurate information and files a report with corrected information within 90 calendar days after filing the inaccurate report.
The unauthorized disclosure or use of beneficial ownership information obtained may lead to a civil penalty of up to $500 per day, and a criminal penalty of up to $250,000 and/or imprisonment of up to five years. The criminal penalty increases to up to $500,000 and/or imprisonment of up to 10 years, if the unauthorized disclosure or use occurs while violating another law of the United States or as part of a pattern of illegal activity involving more than $100,000 in a 12-month period.
The bottom line
Due to the potential for penalties and even potential criminal consequences, businesses need to make this a priority. Businesses in existence prior to 2024 will have a year to get this done, but it might be best to start planning now.