Understanding Beneficial Ownership Information Reports
- Overview of the Corporate Transparency Act
- The Importance of Beneficial Ownership Information Reporting for Businesses
- What Entities Must File Beneficial Ownership Information Reports?
- Exemptions to the Beneficial Ownership Information Reporting Requirements
- What to Do If You Have to File a Beneficial Ownership Information Report
- Who is a Beneficial Owner Under the Corporate Transparency Act?
- The Beneficial Owner Exceptions Under the Corporate Transparency Act
- Who is a Company Applicant Under the Corporate Transparency Act?
- The High Stakes of Transparency: Navigating Beneficial Ownership Information Reporting Penalties
- FinCEN Identifier: A Simplified Compliance Tool
- Beneficial Ownership Information Reporting: Updates and Corrections
The Importance of Beneficial Ownership Information Reporting for Businesses
The Corporate Transparency Act is a new compliance issue for most U.S. entities. Here are a couple key points:
- Compliance Requirements: Businesses that fall under the scope of the Corporate Transparency Act will need to report beneficial ownership information to FinCEN. This includes providing details about all beneficial owners of a business as well as those advisors or individuals who helped to form the business. Companies will need to be diligent in (1) identifying and gathering all required information from all beneficial owners and company applicants, (2) maintaining accurate and up-to-date information, and (3) ensuring timely and correct reporting of this information.
- Compliance Risks: Businesses must be aware of the legal consequences of failing to report or providing false information. Failing to file a Beneficial Ownership Information Report or to report complete or updated beneficial ownership information can result in significant civil and criminal penalties.
The new Beneficial Ownership Information Reporting regime will impose costs on businesses. These costs include:
- Administrative Costs: Businesses may incur administrative costs associated with collecting and maintaining accurate information about their beneficial owners and company applicants. This includes the time and resources needed to understand the reporting requirements, gather necessary documentation, and ensure that the information is kept up-to-date
- Reporting Costs: Businesses may need to invest in systems or software to manage the beneficial ownership information reporting process, especially if they have multiple beneficial owners or complex ownership structures. Additionally, companies may choose to seek professional advice from attorneys to assist with compliance and reporting.
- Training Costs: Beneficial ownership information reports are an entirely new company reporting requirement. Businesses may need to train their staff on these new requirements to ensure that everyone involved in the reporting process understands their responsibilities and how to properly collect and report the information.
- Penalty Costs: There can be significant penalty costs for failing to comply with all beneficial ownership information reporting requirements. Civil penalties can amount to up to $500 for each day that the violation continues. Criminal penalties can include imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required a correct Beneficial Ownership Information Report may also be held accountable for that failure.
The New Beneficial Ownership Compliance Regime for U.S. Businesses
To adhere to the Corporate Transparency Act’s requirements, reporting companies must now embed new provisions within their governance documents. These provisions should be designed to mandate the disclosure of identifying information by all beneficial owners, including those with indirect ownership stakes. The obligation to furnish such data should be made an active duty that is codified within the company’s foundational agreements.
The responsibility for collecting and safeguarding this sensitive data—classified as “personally identifiable information” (PII)—falls squarely on the company. It should therefore designate an officer or senior manager to oversee the initial beneficial ownership information report and ensure its timely submission. Moreover, the Corporate Transparency Act demands that companies update their reports following any change in beneficial ownership, necessitating a system that enables the continuous collection of up-to-date PII from beneficial owners.
Businesses’ governance documents must therefore be crafted to not only require the submission of accurate information but also to establish accountability. Beneficial owners should be held responsible to the company and their peers for any inaccuracies or omissions in the data provided. Conversely, the company bears the responsibility of protecting the confidentiality of its beneficial owners’ PII, except when disclosure to FinCEN is mandated by law.
This new framework of information collection and accountability represents a significant shift for private businesses. It requires a reevaluation of internal processes and a renewed commitment to regulatory compliance. As companies adapt to these changes, they will inevitably develop a deeper understanding of their ownership structures and the critical role that transparency plays in the modern business environment.
Our Recommendations for Complying with The Corporate Transparency Act
Kim & Rosado LLP recommends that all businesses take the following steps:
- Determine if your entity is a reporting company that is required to file a Beneficial Ownership Information Report.
- Determine whether your entity is one of the 23 types of entities excepted from beneficial ownership information reporting.
- Determine who the beneficial owners of the business are.
- Consider amending your business’ governance documents to require all beneficial owners to comply with the beneficial ownership information reporting process (and provide remedies for noncompliance).
- Ensure that each beneficial owner has an acceptable, non-expired identification document.
- Encourage each beneficial owner to apply for a FinCEN identifier as soon possible.
- Develop an internal beneficial ownership information reporting program to ensure that the company stays in compliance and files timely updated beneficial ownership information reports.
- Dissolve any inactive entities to avoid the ongoing costs of beneficial ownership information reporting.
Conclusion
For firms navigating this complex landscape, the expertise of seasoned legal professionals can be invaluable. At Kim & Rosado, our partners leverage their unparalleled experience with the Department of Treasury and deep understanding of government regulations to guide clients through the intricacies of beneficial ownership information reporting. We stand ready to assist you in developing robust compliance procedures that not only meet the letter of the law but also protect the interests of your company and its owners.