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Beneficial Ownership Reports

The Beneficial Ownership Information Reporting Rule, a component of the Corporate Transparency Act, introduces a new reporting requirement overseen by the Financial Crimes Enforcement Network (FinCEN), a division within the U.S. Department of the Treasury. Its primary purpose is to enhance transparency in the ownership structures of companies, serving as a vital tool for federal authorities to combat financial crimes and fraudulent activities, such as money laundering, corruption, human trafficking, drug trafficking, tax fraud, and fraud against various stakeholders.

Under the Corporate Transparency Act, businesses, including multi-member and single-member LLCs, must file a Beneficial Ownership Information Report to avoid potential criminal and civil penalties. Failure to comply can lead to significant consequences, including criminal penalties with imprisonment of up to two years and fines of up to $10,000.

Engaging the expertise of an experienced business attorney at Easler Law is vital for business owners when preparing beneficial ownership reports. While do-it-yourself websites may seem convenient, the intricacies of compliance with the Corporate Transparency Act require understanding the legal and regulatory landscape. An experienced attorney possesses the knowledge and insight to navigate these complexities effectively, ensuring accurate reporting, minimizing the risk of costly errors, and offering legal guidance on interpreting the Corporate Transparency Act's provisions and avoiding potential fines and penalties.

The Corporate Transparency Act (CTA) also includes exemptions for twenty-three (23) types of entities. Businesses should carefully review these exemptions. Some common exemptions encompass qualified charities and business entities meeting specific criteria, such as having a physical office in the U.S., a workforce of at least twenty (20) full-time employees, or gross receipts exceeding $5 million in the previous year. The exemptions also apply to publicly traded or federally regulated entities are exempted. Here is a list of the most common exempt business entities:

  • Public companies: These companies are exempt because they are already subject to substantial reporting requirements under U.S. securities laws.

  • Financial institutions: Banks, credit unions, and other financial institutions are exempt because they are already subject to significant regulatory oversight and reporting requirements under U.S. law.

  • Government entities: Government agencies and entities are exempt because they are subject to public scrutiny and oversight.

  • Tax-exempt entities: These entities, such as charities and religious organizations, are exempt because they are subject to separate reporting requirements under U.S. tax law.

Non-exempt entities must report detailed information about the reporting business, including its full legal name, trade or DBA name, physical address, federal tax I.D. number (EIN), and jurisdiction of the establishment. Additionally, it requires comprehensive data about the owners, encompassing their full legal names, birthdates, current addresses, and images of acceptable identification documents like passports or driver's licenses. This should also include the issuing jurisdiction and document I.D. number. If the applicant (an individual who filed formation documents) is not a beneficial owner, their information is also necessary.

Beneficial ownership information, as stipulated by the Corporate Transparency Act (CTA), encompasses specific details about individuals who either directly or indirectly exert substantial control over a reporting entity or directly or indirectly own or control twenty-five percent (25%) or more of the ownership or voting rights within a reporting entity. Trusts meeting these criteria may also involve trustees or beneficiaries as beneficial owners. Determining substantial control requires a thorough analysis of the CTA provisions.

Failure to comply can lead to significant consequences, including criminal penalties with imprisonment of up to two years and fines of up to $10,000.

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