On January 1st, 2021, U.S. Congress enacted the Corporate Transparency Act (CTA), as part of its ongoing battle against money laundering through U.S. entities. In order to avoid criminal charges, and comply with the CTA, companies are required to file a report with the Financial Crimes Enforcement Network (FinCEN), within a timely manner.
A CTA report, also known as a beneficial ownership FinCEN report, asks companies to provide the following information:
- Company name, year of registration, state, and address;
- Company’s Federal Employer Identification Number (FEIN), and company registration number;
- Names and images of all beneficial owners;
On top of that, the company’s beneficial owners also need to file their own individual reports to FinCEN.
As a beneficial owner, you will need to provide:
- Date of birth;
- Company Role;
- Residential Address;
- Identifying Document.
What is beneficial ownership – FinCEN Edition
FinCEN defines a company’s “beneficial owner” as someone who:
Owns or controls at least 25% of the entity’s ownership interests (equity in the company, capital/profit interests, warrants, etc.); OR has substantial control over the entity making decisions.
So even if you don’t actually own the company, but play an important role in decision-making, you count as a beneficial owner, and will need to be included in the beneficial ownership FinCEN report. Beneficial owners who do not wish to file said reports can instead apply for a FinCEN reporting number. This could be useful if you don’t wish to submit your personal information through a reporting company.
What is a FinCEN reporting number?
You can apply for a FinCEN reporting number by supplying all the information that a CTA report will require directly to FinCEN. So, you would still need to provide your name, nationality, date of birth, address, and a copy of an identifying document. Only, instead of submitting that into the company’s report, you do so privately.
If you are approved for a FinCEN reporting number, bear in mind you will be required to regularly update your identifying document information, as necessary.
When your company is comprising its CTA report, if you own a FinCEN reporting number, you’ll be able to directly submit the number (instead of a report detailing your information). Your data will be already stored in FinCEN’s BOI database.
Who is eligible for a FinCEN reporting number? What are the benefits?
Anyone with an acceptable identification document can apply for a FinCEN reporting number. The main reason why FinCEN is offering this alternative is data security. With a reporting number, you could comply with the Corporate Transparency Act, without filing information through the reporting company.
A FinCEN reporting number also provides anonymity, in case the reporting company is not directly owned by you, and you wish to hold back identifying information.
Lastly, a FinCEN reporting number could improve efficiency, if you act as a beneficial owner in multiple entities.
How many people will use a reporting number?
Despite the benefits, FinCEN estimates the number of people who will apply for a reporting number to be low, and go even lower, in the following years (going from 258,737 individuals in the first year, to only 32,266 going forward).
According to FinCEN, the reason for this would be individuals might prefer using a filing partner, because of liability transfer reasons, and for ease of reporting.
So overall, it’s expected that only 1% of beneficial owners will benefit from a FinCEN reporting number.