What is Beneficial Ownership?
The CTA defines a “beneficial owner” as an individual who either:
• Exercises substantial control over the entity,” whether directly or indirectly; or
• Holds at least one-fourth ownership of the entity.
It does not, however, include the following individuals, even if they meet the above criteria:
• Minor children;
• Individuals acting on someone else’s behalf;
• Individuals acting solely in an employee capacity; and
• Individuals who inherited their interest in the entity.
Shareholders of a corporation or members of an LLC may meet the CTA’s definition of beneficial ownership. An individual who gains an interest in a business entity as a creditor may also count as a beneficial owner.
Who is required to File a Report?
Business entities identified as “reporting companies” by the CTA must file beneficial owner reports. The statute establishes two categories of reporting companies:
• Domestic: Business entities created under the laws of a U.S. state or Indian tribe.
• Foreign: Business entities created in a foreign country and registered with a U.S. state or tribal government.
The CTA provides exceptions to the reporting requirement in 23 categories, including:
• Entities with more than 20 full-time employees in the U.S. and over $5 million in gross receipts or sales during the previous year;
• Entities that have existed for over a year, have no foreign owners and are not actively engaged in business;
• Entities that are registered as issuers of securities with the Securities and Exchange Commission (SEC);
• Securities brokers registered with the SEC;
• Federally-regulated banks;
• Credit unions regulated under federal or state law; and
• Entities that are tax-exempt under § 501(c) of the Internal Revenue Code.
What Information is Required for the Report?
The purpose of beneficial ownership reporting, according to the statement that Congress included in the text of the CTA, is to prevent “malign actors…[from] conceal[ing] their ownership of…[business] entities in the United States to facilitate illicit activity.” The report must include the following information about the entity:
• Its legal name, along with any “doing business as” (DBA) names;
• Its primary business address;
• The jurisdiction under which it was formed;
• The employer identification number (EIN) received from the IRS; and
• Information about each beneficial owner.
With regard to an entity’s beneficial owners, the report must include:
• Their full legal name;
• Their date of birth;
• Their address;
• A unique identification number from a driver’s license, passport or other government-issued ID; and
• An image of the driver’s license, passport or other ID.
When are the Reports Due?
Every reporting company must file an initial beneficial ownership report. They must file subsequent reports if they experience changes in beneficial ownership.
Due Dates of Initial Reports
The CTA takes effect on January 1, 2024. The due date for filing initial beneficial ownership reports depends on the status of the company as of that date:
• Entities that are already in existence as of January 1, 2024 must file a report by January 1, 2025.
• Entities that are formed on or after January 1, 2024 must file within 30 days of the formation date.
Note that entities formed in 2024 may have to file beneficial ownership reports earlier than entities that were already in existence. An entity formed on April 10, 2024, for example, would have to file a report by May 10. An entity formed years earlier would have until January 1, 2025 to file.
Due Dates for Subsequent Reports
Reporting companies must file a report within 30 days of either:
• A change in beneficial ownership; or
• Discovery of inaccuracies in prior reports.
What Happens if a Company Does Not File a Report?
Willfully failing to file a report or filing false information can result in:
• Civil penalties of up to $500 for each day that a violation continues;
• A fine of up to $10,000; and
• Up to two years’ imprisonment.
Learn More About the New Requirements
Operating a business through an entity like a corporation or LLC provides many benefits. It also carries some significant obligations, including reporting and filing requirements. Keeping up with all of the required paperwork can be difficult, which is where professional assistance can be invaluable.
Contact Frankel to learn more about how we can support your business at www.frankel.cpa or call us at (402) 469-9100.