New Reporting Requirement for Businesses to Begin Jan 1st

The new year will bring a new reporting requirement for businesses in the United States. Beginning on January 1, 2024, companies in the U.S. will need to identify the people who own and control them. This new reporting requirement will affect almost all small businesses. The federal government estimated that more than 32 million companies will need to report this information beginning January 1.

The reporting requirement comes from the Corporate Transparency Act, which Congress enacted in January 2021 as part of the military budget for 2021 and which the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) implemented in a “reporting rule.” The purpose of the reporting rule is to combat money laundering undertaken in the U.S. with nameless, anonymous shell companies.

Under the rule, “reporting companies” must file a report identifying their owners with FinCEN. A reporting company is any corporate entity formed with a Secretary of State, such as limited liability companies and corporations. There are exemptions, like for nonprofit organizations and large operating companies. FinCEN did not intend for the rule to apply to trusts, partnerships, or money service businesses. In its report, the reporting company must identify each “beneficial owner,” which is anyone who exercises substantial control over the company or owns 25 percent or more of the ownership interests in the company. The reporting company must also identify the “company applicant,” which is the person who filed the documents that created the company.

The Corporate Transparency Act goes into effect on January 1, 2024. Reporting companies formed on or after this date must file an initial report with FinCEN within thirty days. Reporting companies formed before January 1, 2024 have more time—they must file their initial report before January 1, 2025.

Written by attorney Travis Filicky.

For more information about this new reporting rule, contact any member of the SSEG Business Law, Transactional Law, Securities Law, and Corporate Law practice group.