Under this rule, entities registered in or doing business in the U.S. will be required to report their beneficial owners, and all businesses created or registered after Jan. 1, 2024 will be required to also report their company applicants. This includes corporations, LLCs, DBAs and some trusts.
The goal of the rule is to safeguard the U.S. financial system from racketeering, corruption, money laundering, terrorism, and other crimes by combatting the use of shell corporations and other entities that facilitate criminal financial behavior.
How the new rule will affect small business owners
While most small business owners will simply report themselves and their partners as beneficial owners, companies that have more complex ownership systems may find the reporting more time-consuming.
What is a beneficial owner?
Beneficial owners (BOs) are defined as persons who have at least a 25% stake in the business, or have significant control or decision-making power in the business. A beneficial owner can also be a legal entity, like a trust or an LLC. Every company must report at least one BO, but there is no maximum number.
If your company has many layers of ownership, you can consult a flowchart created by FinCEN that will help you determine who is a BO and who is not.
What is a company applicant?
Only companies that are created or registered after Jan. 1, 2024 need to report company applicants (CAs). CAs are the individuals who actually create or register the company with the Secretary of State. If a company has more than one CA—the direct filer and the indirect filer who is controlling or directing the filing must both be reported. Unlike a beneficial owner, company applicants can only be individuals, not legal entities.
How Bench can help
This new reporting requirement affects a business’s entire financial life, including accounting and tax filing. Bench clients can rest assured that their tax advisory teams stay up to date on the latest financial requirements and changes, like this one, and are available to help explain what business owners need to do in order to stay in compliance.
How to report beneficial owners and company applicants
Companies will be able to file their information electronically through the FinCEN secure portal, which is not yet live. The agency will publish instructions and technical guidance on reporting on their website at fincen.gov/boi some time between now and Jan. 1, 2024.
Business owners will need to report the following information.
For their company:
- Full legal name
- Trade name or DBA name
- Current U.S. address for principal place of business
- State or jurisdiction where entity is registered
- Federal Tax ID number TIN, or Employer ID number EIN
For their beneficial owners and company applicants:
- Full legal name
- Date of birth
- Current residential address
- Unique ID number and issuing state, and image of U.S. passport, state driver’s license, other state or government issued ID
A FinCEN unique identifying number can be applied for and used in place of the ID information above.
What should business owners do to prepare?
Right now, business owners can collect the required information so they are ready to report once the FinCEN portal is available. Here’s what to do, step-by-step.
Step 1: Identify individuals with substantial control over your company and/or 25% or greater owners.
Step 2: Identify the types of ownership interest (percentage or control), and which individuals hold them.
Step 3: Calculate the percentage of ownership interest held directly or indirectly by each individual.
As always, your Bench team is available to help with these and any other reporting questions you may have.