Staying compliant with business regulations is essential to keeping your operations running smoothly. Recently, there’s been a new reporting requirement that could cost your business $591 per day in fines if not properly addressed—starting as early as next month. Here’s everything you need to know to avoid those fines and stay on track.
What is the New Reporting Requirement?
The new requirement stems from the Corporate Transparency Act, which mandates that certain businesses file reports with the Financial Crimes Enforcement Network (FinCEN) regarding their beneficial owners and company applicants. Though this may sound complicated, understanding the basics can ensure you comply and avoid penalties.
Who Needs to Report?
Not all businesses are required to submit this report. Here’s a quick checklist to determine if your business qualifies as a “reporting company”:
- If you’re a sole proprietor, you don’t need to worry—you’re exempt.
- If your business is a corporation, LLC, or any entity formed by filing a document with a state or tribal jurisdiction, then you likely need to report.
- Businesses registered to do business in the U.S. must also file a report.
However, there are specific exemptions to these rules, which can be found in FinCEN’s guidelines. If your business falls into one of these exempt categories, you can skip the filing.
Defining Beneficial Owners
A beneficial owner is anyone who exercises substantial control over the business or owns at least 25% of the company. This can include senior officers, major decision-makers, and individuals who control a significant portion of the company’s equity, stock, or voting rights.
- Substantial control: This includes being a senior officer, having the authority to appoint or remove key personnel, or having major decision-making power.
- Ownership interests: This includes stock, equity, capital interest, and other instruments like options or rights to buy shares.
Some individuals, such as minors, employees, and creditors, may be exempt from being classified as beneficial owners.
Understanding Company Applicants
In addition to reporting beneficial owners, some companies must also disclose their applicants—those who file the initial company registration documents. This applies only if your company was registered after January 1, 2024. If you registered before that date, you don’t need to report your applicants.
An applicant is defined as either the person who directly files the registration documents or someone who directs or controls the filing process.
When and How to File
You should begin gathering the necessary information now, as fines will start accumulating in mid-January for businesses that fail to submit their reports. Don’t delay, as the cost of not complying could be steep.
What Information is Required?
Here’s a checklist of the key information you’ll need to report for both the business and its beneficial owners:
For the Reporting Company:
- Legal name and any trade names or DBAs (doing business as)
- Full U.S. address or the primary place of business
- Jurisdiction of formation (state, tribal, or foreign)
- Taxpayer Identification Number (TIN) or Employer Identification Number (EIN)
For Each Beneficial Owner and Company Applicant:
- Full legal name and date of birth
- Residential address (or business address for certain company applicants)
- Unique identifying number (e.g., U.S. passport, driver’s license, or foreign passport)
- Image of a government-issued ID
Additional Considerations
While the filing process is designed to be straightforward, it might be a good idea to consult with a tax or legal professional, especially if you’re unsure about any of the details. Though FinCEN suggests that professional assistance may not be necessary, getting help could provide peace of mind and ensure that the filing is done correctly.
Conclusion
Understanding and complying with the new reporting requirements is crucial to avoiding unnecessary fines. By ensuring that you accurately report your business’s beneficial owners and company applicants, you can steer clear of the $591-a-day penalties. Take the time to gather the necessary information now, and consult with a professional if needed. With proper preparation, you’ll be well on your way to staying compliant and avoiding costly mistakes.