Understanding the New Federal Reporting Requirement for Businesses: Beneficial Ownership Information

May 1, 2024

As you might be aware, Starting January 1, 2024, a significant regulatory change impacting many american-based companies across the United States was implemented. A new federal mandate requires these companies to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), an agency within the U.S. Department of the Treasury. This article provides an overview of what beneficial ownership means and the information that businesses will need to report under this new rule.

What is Beneficial Ownership?

Beneficial ownership refers to the individuals who own or control a legal entity. The new federal requirement, effective from January 2024, mandates that any entity classified as a "reporting company" must disclose detailed information about its beneficial owners. This requirement is part of broader efforts to enhance transparency and combat financial crimes such as money laundering, tax evasion, and terrorist financing. By identifying the beneficial owners, authorities aim to prevent these entities from being used as vehicles for illicit activities.

The key point to note is that this is not an ongoing annual obligation. Once a company files its initial report—unless there are updates or corrections to be made—no further BOI filings are required.

Importance of Reporting Beneficial Ownership

Reporting beneficial ownership information is crucial for several reasons:

  1. Enhancing Transparency: It provides clear visibility into who ultimately owns and controls entities.
  2. Preventing Financial Crimes: It aids in preventing the misuse of corporate structures for illicit purposes.
  3. Facilitating Legal Compliance: It ensures that entities comply with both local and international regulatory standards.

Who Needs to Report?

The requirement applies to:

  1. Domestic entities like corporations and limited liability companies (LLCs) that are formed by filing with a secretary of state or similar office under state or tribal law.
  2. Foreign entities registered to do business in any U.S. state or under tribal law.

Exemptions from Reporting

Not all entities are required to comply with this new federal reporting rule. There are 23 specific types of exempt entities, including insurance companies, brokers or dealers in securities, and large operating companies that meet predefined criteria. FinCEN provides a detailed compliance guide with checklists to help companies determine if they qualify for an exemption.

Required Information

The information that must be reported varies by jurisdiction but typically includes:

For the Reporting Company:

  • Legal name
  • Trade names or "doing business as" names
  • Principal place of business address in the U.S.
  • Jurisdiction of formation or registration
  • Taxpayer Identification Number (TIN), or a foreign tax ID if applicable

For Beneficial Owners:

  • Name
  • Date of birth
  • Residential address
  • Identifying number from an acceptable document (e.g., passport, driver’s license)
  • Image of the identification document

How and When to Report?

Reporting must be done electronically via FinCEN's official website. The platform is designed to be user-friendly, ensuring that filing is straightforward, secure, and free of charge. Here are the critical deadlines:

Source: FinCEN

If you are required to report your company’s beneficial ownership information to FinCEN, you will do so electronically through a secure filing system available via FinCEN’s BOI E-Filing website.

Next Steps

This new reporting requirement marks a critical step toward greater financial transparency in the United States. Companies are advised to review the Small Entity Compliance Guide provided by FinCEN to fully understand their obligations. Compliance not only adheres to legal mandates but also builds trust with stakeholders and protects the integrity of the financial system.

City National Bank of Florida will continue to require Beneficial Owner Information when opening an account. To ensure bank records are as accurate as possible, the bank must also be notified when ownership changes take place.

For more detailed information, businesses should visit FinCEN's BOI resource page. This proactive approach will ensure that your business remains compliant while contributing to a more transparent and secure financial environment.

Please note: The content in this article comes from individual opinions and experiences. The content should not be taken as advice coming from City National Bank of Florida. City National Bank of Florida does not offer tax, legal or accounting advice.



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