Beneficial Ownership Rule and
LLC Bank Accounts (CDD Rule)

Home » Beneficial Ownership Rule and LLC Bank Accounts (CDD Rule)

Banks are required to verify the identity of the individuals (natural persons) who own or control LLCs when opening bank accounts.

This includes LLCs owned by US citizens and US residents as well as LLCs owned by foreign nationals (non-US citizens and non-US residents).

The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of Treasury, issued the “Customer Due Diligence Requirements for Financial Institutions” (CDD Rule), effective July 11th, 2016. Applicable financial institutions must comply by May 11th, 2018.

The final CDD rule amends the Bank Secrecy Act (BSA), making the regulations more clear for banks to follow.

The purpose of the CDD Rule, FinCEN, and the BSA are to assist the United States government in monitoring illegal financial activity. For example, preventing Americans and non-Americans from using LLCs (and other legal entities) for things like sanction evasion, money laundering, fraud, and tax evasion.

What types of LLCs are included in the new rules?

Any and all types of LLCs fall under the definition of “legal entities”, as per Section 1010.230 (see e, # 1) of Title 31 of the Code of Federal Regulations.

This means both Single-Member LLCs (disregarded entities) and Multi-Member LLCs.

Note: A Sole Proprietorship isn’t a legal entity, but a Single-Member LLC taxed as a Sole Proprietorship (which is the default tax election) is a legal entity. For more information, please see how are LLCs taxed.

The type of taxation with the IRS doesn’t affect the beneficial ownership requirements; all LLCs are affected.

It also doesn’t matter if the LLC owners (“members”) are US citizens, US residents, non-US citizens, non-US residents, or foreign nationals.

Furthermore, it doesn’t matter if the LLC was formed in the United States or if it was formed in a foreign country. And it doesn’t matter how long the “chain of ownership” is. For example, if a company owns a company, which in turn owns another company, the individual people behind the “parent company” are the Beneficial Owners.

In summary, the new laws are written in such a way that it doesn’t matter who owns the LLC, how many “layers” there are, where the LLC was set up, how the LLC was set up, or how the LLC is taxed.

All Beneficial Owners of the LLC need to be reported (and their identities verified) when opening up an LLC bank account.

The 2-step approach to LLC “Beneficial Owners”

The 2-step approach to defining a Beneficial Owner is:

  • the “ownership prong” (who are the ultimate owners, owning 25% or more)
  • and the “control prong” (who controls the LLC, regardless of ownership)

Note: The control prong was created to avoid the loophole of the ownership prong. For example, an LLC with 5 Members, each owning only 20%, wouldn’t have to disclose the beneficial owners. However, under the control prong, the beneficial owners would be disclosed.

Section 1010.230 (see d) of Title 31 of the Code of Federal Regulations defines what it means to be a Beneficial Owner.

In the context of an LLC, a Beneficial Owner is:

  • any person, who directly or indirectly (through any contract, arrangement, understanding, relationship or otherwise) owns 25% or more of the LLC
  • any person with significant responsibility or authority to control, manage, or direct an LLC

If a trust owns 25% or more (directly or indirectly) of an LLC, the Beneficial Owner is the Trustee.

Furthermore, if a nominee or “straw man” (with no control or management) is in place as an LLC Member, Manager, Officer, or any similar position, they are not a Beneficial Owner.

Another way to think of the Beneficial Owner is who is/are the “ultimate owner(s)”?

What information about Beneficial Owners is collected?

In addition to information collected about your LLC (LLC name, address, EIN Number), the Beneficial Ownership forms ask for personal information, such as:

  • name
  • date of birth
  • current physical residential address or business address
  • a government identification number (such as your Social Security Number)

Other possible forms of identification that may be accepted by the bank are:

  • state-issued ID with a photograph
  • other US government-issued IDs with a photograph
  • US government-issued ID with a photograph
  • US passport
  • Non-resident alien card with a photograph and identification number

If you are a non-US resident or non-US citizen (“foreign national”) and you don’t have a Social Security Number, the bank will ask for either:

*If you’re a foreign national, the bank may accept your foreign driver’s license number (or another form of official identification), but this isn’t specified in the new laws, so it’s up to the bank and their own internal policies.

There isn’t going to be a “black and white” rule on this, so if you’re a foreign national opening an LLC bank account in the US, we recommend calling the bank ahead of time and speaking with the branch manager. This will help you determine which documents and forms of identification you need to bring in to open your LLC bank account.

The 4 core requirements of the CDD Rule

While the Final CDD Rule is over 60 pages, the 4 core responsibilities for banks and financial institutions are to:

  1. identify and verify the identity of customers
  2. identify and verify the identity of the Beneficial Owners of companies opening accounts
  3. understand the nature and purpose of customer relationships to develop customer risk profiles
  4. conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information

Beneficial Owner Declaration Forms for Banking

The branch where you open your LLC bank account should provide you with their own Beneficial Ownership Declaration Form.

However, we’ve heard of a few cases where the bank has asked LLC owners to provide their own form.

While we think this is kind of weird (and it might be a good idea to check out other banks), here is a standardized form provided by FinCEN: Certificate of Beneficial Owners Form.

You can also find template examples from other major US banks listed below:

Note: These forms are provided as examples only. They may not be the most up-to-date versions for each bank’s Beneficial Owners forms. If you haven’t opened your LLC bank account yet, make sure to call the bank ahead of time and ask which forms are necessary. Again, the bank will most likely provide this form when you go into the branch location.

Beneficial Ownership Certification (BB&T Bank)
Certification of Beneficial Owners (Fifth Third Bank)
Certification Regarding Beneficial Owners of Legal Entity Customers (TD Bank)
Certification Regarding Beneficial Owners of Legal Entity Customers (Wells Fargo)
Certification Regarding Beneficial Owners of Legal Entity Customers (Navy Federal)

Matt Horwitz
Matt Horwitz
Founder & Educator, LLC University®
Matt Horwitz has been the leading expert on LLC education for the past decade. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC that other companies weren't offering. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.

2 comments on “Beneficial Ownership Rule and LLC Bank Accounts (CDD Rule)”

Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

  1. Matt, I’ve been asked to “keep the books” for a family member-paid as an independent contractor. This family member and his wife formed an LLC business an opened a business checking and savings account.?. Iced downloaded the transactions into QB and am attempting to categorize the transactions. This is what I understand about their business dealings. This may be more info than needed to answer my question but I’m unsure. I think they bill another contractor for cabinet installations they do all over the US. In the business bank accounts I never see recorded payments received from the person/company they invoice-only cash being transferred in and out of the owners personal bank account. This cash pays contracted labor and other things like equipment purchases, vehicle payments, credit card payments, monthly QB fees, etc. I’m unsure how to categorize these constant transfers of money. It appears they have been labeling transfers into the LLC bank acct as “uncategorized assets.” I think I’ve seen one transfer out labeled a “draw” but I’m unsure that is correct because the only money ever going in is from their personal account. How would withdrawals to their personal account be categorized? The LLC checking and savings was only opened in July and august of this year and I’ve just been able to begin the process of entering these into QB. Can u advise me please?

  2. Your comment below is confusing. I’m a bank compliance officer. The control prong only gathers the person with significant control (who may not even be an owner), like a manager. There is no collection of any BO info on the 20%’rs you describe.

    Note: The control prong was created to avoid the loophole of the ownership prong. For example, an LLC with 5 Members, each owning only 20%, wouldn’t have to disclose the beneficial owners. However, under the control prong, the beneficial owners would be disclosed.


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