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Starting earlier this year, many US-based companies are required to report information to the Financial Crimes Enforcement Network (finsen) about who owns or controls the company — this is Corporate Transparency Act (CTA) Enacted by Congress in 2021 to prevent illegal activities by anonymously owned entities.
This represents a fundamental change in the way U.S.-based companies operate. Reporting deadlines vary depending on the date of establishment of the company, and non-compliance can result in heavy fines.
How can business owners prepare for this big change? They will need to understand who their beneficiaries are. What types of companies need to report? What needs to be reported. How to prepare a report. and penalties for violations.
What is a beneficiary?
Beneficiary means a person who exercises effective control over the reporting company, one or more intermediate legal entities, or who owns or controls at least 25% of the ownership of the reporting company.
Individuals who fall into one of the following categories exercise substantial control:
- They are senior executives in the C-suite. or serve as president or general counsel of a company.
- They have the power to appoint or dismiss a majority of the reporting company’s senior officers or directors.
- They are key decision makers for reporting companies.
- They have other forms of substantive control that are exercised in new or unique ways, for example through flexible corporate structures that provide control methods other than those listed above.
Related: A 5-step guide to dealing with legal and regulatory changes in your business
Who must report and who does not?
Next, it is important to understand what types of companies are required to report beneficial ownership.
Alternatively, there are 23 types of entities that are exempt from reporting requirements. These include publicly traded companies, nonprofit organizations, and certain large industrial companies. There are also exemptions for inactive companies.
Preparing report
Once business owners understand that they need to report their beneficial ownership information to FinCEN, there is some information that needs to be sorted out.
business analysis
First, you should start analyzing your cap table, management structure, and contractual obligations. FinCEN defines a “beneficiary” as an individual who owns or controls at least 25% of the ownership of an entity and has “substantive control” over the entity; Determining who someone is is not an easy and simple analysis. . Therefore, in addition to the capital statement, it is important to examine the company’s management structure and contractual obligations to see who has ultimate control of the business.
Next, collect each beneficiary’s name, address, and passport/driver’s license information or obtain a FinCEN ID for reporting purposes.
Put processes in place
Make sure everyone knows that any change in beneficiary needs to be reported to FinCEN within 30 days. Therefore, when a company adds a major shareholder, it appoints new senior executives. We have a new director. Or, if a proxy voting agreement has been entered into, management should be made aware that the update of the company’s BOI report must be done with her FinCEN within his 30 days.
This is not part of your company’s standard operating procedures, so it will take some learning to remember that you need to complete this.
What do I have to report?
There are two sets of information required for the reporting process.
First, reporting companies must report:
- Its official name.
- Trade name, d/b/a or t/a name.
- Main office address.
- Jurisdiction of establishment or registration.and
- Taxpayer identification number
Another set of information focuses on beneficiaries. The report must include:
- person’s name.
- date of birth;
- residential address; and
- An identification number from an acceptable form of identification, such as a passport or U.S. driver’s license.
Reporting deadlines and penalties
Reports will be accepted from January 1, 2024. If the company was formed or registered before his January 1, 2024, he must report company and beneficial ownership information by January 1, 2025.
If the company was formed or registered on or after January 1, 2024, beneficial ownership information, including information about the company itself, its beneficial owners, and the company applicant (i.e., the applicant or the person controlling the initial registration filing); must be reported within 90 years. Calendar date of effective registration date.
Finally, updates or corrections to beneficial ownership information previously submitted to FinCEN must be submitted within 30 days. Updates must be submitted for each reporting company and each reportable beneficiary after any changes previously submitted to FinCEN, such as a change of address or a new passport or driver’s license number.
Failure to do so may result in civil penalties of up to $500 per day, up to two years in prison, and criminal penalties of up to $10,000 in fines.
Related: Your business may be violating federal regulations without knowing it, and it could cost you a lot of money. Here’s how to get around it:
conclusion
The Corporate Transparency Act will take some time for managers to get used to. However, this is an important law for businesses to understand and can meet the requirements by submitting the right information in the right time frame.