The federal government is passing a new law that will require all business entities to file paperwork called a Beneficial Ownership Information Form. However, the regulations and filing forms haven’t been finalized yet. They are expected to be issued at the end of 2022 or early 2023. There will be civil and criminal penalties for not filing this paperwork, so we recommend bookmarking this page and checking back in a few months.
What is the Corporate Transparency Act?
The Corporate Transparency Act (page 2996) is a new federal regulation (HR 6395) that will affect over 30 million businesses in the United States.
The purpose of the Corporate Transparency Act is to prevent criminals from using U.S. LLCs, Corporations, and other business entities as anonymous shell companies for illegal activities.
The Act is enforced by FinCEN (Financial Crimes Enforcement Network) – a federal department that is responsible for safeguarding the U.S. financial system against illegal activity, such as money laundering, fraud, corruption, and terrorist financing.
The Corporate Transparency Act became law on January 1, 2022, but it won’t fully go into effect until FinCEN issues final regulations (expected end of 2022 or early 2023).
This act will require all Reporting Companies to report beneficial ownership information to the federal government.
What is a Reporting Company?
According to the Corporate Transparency Act, a Reporting Company is:
“A Corporation, Limited Liability Company (LLC), or other similar entity that is created by the filing of a document with a Secretary of State or a similar office under the law of a State or Indian Tribe.”
In simpler terms, the Corporate Transparency Act will impact every U.S. business structure, including:
- Limited Liability Companies (LLC)
- Limited Partnerships
- Limited Liability Partnerships
- Any other other entities created by filing a document with a state Secretary of State
- Any entity formed in a foreign country that is registered to do business in the US
If a company is considered a Reporting Company, then they must follow the rules of the Corporate Transparency Act and file a Beneficial Ownership Information Form.
What information goes in the Beneficial Ownership Information Form?
The following information must be reported to FinCEN for all Beneficial Owners:
- Full legal name
- Date of birth
- Current address
- Unique identifying number
Address: The address can be a residential address or a business street address. If you use a residential address, it should be the same address that you use on your personal tax return.
Unique identifying number: This is a unique number from a government-issued identification (aka acceptable identification document). For example, a driver’s license number, state identification card number, passport number, or military identification card.
The following information must be reported to FinCEN for the company:
EIN Number: If the company has not obtained an EIN from the IRS yet, it can use a Dun & Bradstreet Number (DUNS) or the company’s Entity ID Number issued by the Secretary of State (aka Legal Entity Identifier).
What is a Beneficial Owner?
The definition of a Beneficial Owner is any individual who directly or indirectly:
- owns or controls 25% or more of the company, or
- exercises substantial control over the company.
These ownership interests or substantial control can be through any contract, arrangement, understanding, or relationship.
The following are not considered Beneficial Owners:
- A minor child (as defined in the state where the company was formed) if the information of the parent or guardian is reported
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
- A non-owner employee of the company
- An individual whose only interest in the company is through a right of inheritance
- A creditor of the company
Are there penalties for failure to file?
Yes, there are both civil and criminal penalties for failing to file or submitting false information.
- Civil penalty: Up to $500 per day for each day the violation continues or has not been remedied.
- Criminal penalty: Up to a $10,000 fine or prison for up to 2 years (or both).
Is the database available to the public?
No, the database is not publicly available.
The database is available to:
- US federal government
- US federal law enforcement
- US banks
- State and local law enforcement (if a court order is obtained)
How to file the Beneficial Owner Information Form
As of summer 2022, FinCEN has not released the final regulations, including the reporting forms.
Please bookmark this page and check back in a few months.
It is expected that FinCEN will release final regulations at the end of 2022 or early 2023.
Reporting requirements: Newly formed business
Once FinCEN finalizes the regulations, newly formed companies have to file their Beneficial Ownership Information Form within 14 calendar days after being approved by the state.
So if you’re starting an LLC or other company in 2022, there is a chance you may need to file a Beneficial Ownership Information Form with FinCEN this year.
Reporting requirements: Existing business
If you have an existing business (at the time the final regulations are published), you’ll need to file a Beneficial Ownership Information Form no later than 1 year after the final regulations are published.
Reporting requirements: Beneficial Ownership changes
If there are any changes to the existing Beneficial Owners (or owners are added or removed), an updated report must be submitted to FinCEN within 30 days of the change.
What businesses are exempt from this reporting?
The following businesses are exempt from submitting a Beneficial Ownership Information Form (because this information is already provided to the government by these financial institutions):
- SEC reporting issuer
- Governmental authority
- Credit union
- Depository institution holding company
- Money transmitting business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund advisor
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company
- more than 20 employees
- operating in the US
- and over $5M in sales or gross receipts
- Subsidiary of certain exempt entities
- Inactive entity
- Was in existence on or before January 1, 2020,
- Is not engaged in active business,
- Is not owned by a foreign person, whether directly or indirectly, wholly or partially,
- Has not experienced any change in ownership in the preceding 12-month period,
- Has not sent or received any funds in an amount greater than $1,000 in the preceding 12-month period, and
- Doesn’t hold any kind or type of assets, whether in the United States or abroad, including but not limited to any ownership interest in any Corporation, LLC, or other similar entity.
For more details on any of the above, please see the exemptions from the proposed regulations.
Corporate Transparency Act FAQs
Yes, the Corporate Transparency Act affects all LLCs, regardless of how many owners there are, how the LLC is taxed, or how much money the LLC makes.
Said another way, all Limited Liability Companies need to file a Beneficial Ownership Information Form with FinCEN (the Financial Crimes Enforcement Network).
It depends on who owns the DBA (Doing Business As) Name.
A DBA Name is simply a “nickname” owned and used by an existing business (like an LLC or Corporation), or by a person (usually operating their business as a Sole Proprietorship or General Partnership).
If your DBA Name is owned by a Reporting Company (like an LLC, Corporation, or other business entity), then yes, you need to file a Beneficial Ownership Information Form.
If your DBA Name is owned by your or your business partnership, and you’re operating as a Sole Proprietorship or General Partnership, then no, you don’t need to file a Beneficial Ownership Information Form. This is because Sole Proprietorships and General Partnerships aren’t considered formal business entities.