Have you heard that there is a new requirement for all non-exempt U.S. businesses to register information concerning their beneficial owners with the United States Financial Crimes Enforcement Network? Is this real? It’s very real. Does it apply to me and my business? Most likely, yes.
Each year, more than 2,000,000 limited liability companies, corporations and other entity types register their businesses with a particular state (“ReportingEntities”). In 2022, over 500,000 new LLCs were formed in Florida alone. When a company is formed, the majority of states do not require information about the company’s beneficial owners. For example, to organize a Florida manager-managed LLC, the organizer is only required to provide the company name, address, registered agent, and the name and address of each manager – not the owners. No supporting documentation about the beneficial owners is required.
In many cases, Reporting Entities are owned and/or operated by other entities.Thus, weaving a web of companies without a clear indication of ownership or control. Arguably, this lack of transparency is harmless. However, the anonymity permits nefarious and often undetected illegal activities such as money laundering and terrorist financing.
Countdown to Compliance: Reporting Requirements
The Corporate Transparency Act (the “CTA”) seeks to end “corporate anonymity” and enhance transparency at the federal government level.
Beginning on January 1, 2024, all non-exempt Reporting Entities hall provide supporting documentation and identifying information concerning a company’s beneficial owners to the U.S. Financial Crimes Enforcement Network(FinCEN).
There are two types of reporting companies, domestic and international. Domestic reporting entities are defined by the CTA as corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States. Foreign reporting entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
A beneficial owner is defined as an individual who directly or indirectly, or through any contract, (i) exercises substantial control over an entity or (ii) owns or controls 25% or more of the ownership interests of a company. Per the definition, an individual who exercises substantial control can be a senior officer, an individual with the authority to appoint or remove certain officers or a majority of the directors of a reporting company, an “important decision-maker”, and an individual with any other form of substantial control.
Insum, unless exempt all reporting entities must file their beneficial ownership information, whether the entity is operating a thriving business in the US or solely exists for the purpose of owning an investment property in Miami.
Failure to provide the required information or providing or attempting to provide false or fraudulent information could subject the beneficial owner(s) and/or the company to criminal and/or civil penalties.
Deadlines
Reporting Entities that are formed after January 1, 2024 shall submit to FinCEN the required information within 90-days of formation. Those Reporting Entities that were previously registered with a state are required to report before January 1, 2025. Beginning January 1, 2025, newly created or registered companies will have 30-calendary days to file its beneficial owner information report.
About Ontier
Ontier is a global law firm with offices in Miami, Florida and throughout Europe and Latin America. Ontier Miami, PLLC caters to small and medium sized businesses and their beneficial owners with day-to-day corporate matters, corporate governance, anti-money laundering compliance, liability mitigation and dispute resolution.
