A beneficial owner is someone who either directly or indirectly: (1) possesses or oversees a minimum of 25% of your company’s ownership shares, or (2) wields significant control within your business. If uncertain, consulting with a lawyer in our legal network is recommended.

Instances of substantial control in Beneficial Ownership encompass:

• A key decision-maker within the reporting company
• A high-ranking executive (president, CEO, CFO, general counsel, COO, or equivalent)
• An individual empowered to appoint or dismiss officers, directors, or a similar body within the company

The rule, part of the Corporate Transparency Act, necessitates the identification of individuals benefiting from a legal entity. It ensures transparency and aids federal efforts against financial crimes like money laundering, corruption, human and drug trafficking, tax fraud, and fraud against employees, customers, and other businesses.

Starting Jan. 1, 2024, Beneficial Ownership reporting is legally mandated by the Corporate Transparency Act. It aligns with the U.S. government's continuous efforts to deter individuals hiding or profiting from actions that cause harm.

To comply, a beneficial owner must furnish their legal name, birthdate, address, ownership percentage, and an approved ID image (e.g., passport or driver's license) including its issuing jurisdiction and ID number.

The Financial Crimes Enforcement Network outlines 23 exempt business entities not categorized as reporting companies under this requirement. These include securities issuers, governmental authorities, banks, credit unions, depository institution holding companies, money services businesses, securities brokers, investment advisers, insurance companies, registered entities, accounting firms, public utilities, tax-exempt entities, and inactive entities, among others.

Tax-exempt entities meet any of these criteria:

• IRS recognizes them as exempt under Internal Revenue Code section 501(c) (including many nonprofits).
• Lost tax-exempt status under the code within 180 days.
• Qualify as political organizations per code section 527(a).
• Classified as trusts under code section 4947(a).

The criteria encompass:

• Falling under a federal regulatory regime.
• Employing over 20 full-time workers in the U.S.
• Garnering over $5 million in gross receipts or sales, excluding foreign receipts, on a previous year's IRS tax return.
• Maintaining a physical operational presence in the U.S.
• Being owned by an entity already exempt under the Corporate Transparency Act.
• Receiving designation as exempt by the Secretary of the Treasury and the U.S. Attorney General.

Inactive entities, not required to report, must meet these criteria defined by the Financial Crimes Enforcement Network:

• Established before Jan. 1, 2020.
• Not actively conducting business.
• Not owned by foreign entities, residents, domestic partnerships, corporations, estates, or trusts.
• Not transacted over $1,000 in the past year.
• Possess no assets, including ownership of other entities, within or outside the U.S.

Exemptions from the beneficial owner definition under the Act cover:

• Minors
• Nominees, intermediaries, custodians, or agents representing others
• Non-senior employee interests limited to employment
• Sole inheritance-based interests
• Contingent trust beneficiaries
• Creditors seeking business debt recovery

Corporations and LLCs must disclose details of individuals owning or controlling a business to the Financial Crimes Enforcement Network, meeting Corporate Transparency Act obligations. This applies broadly to most business entities, barring specific exceptions.

The Corporate Transparency Act alters disclosure mandates for business owners' beneficial ownership details in the U.S. It mandates businesses to register and record individuals with a 25%+ ownership stake or significant control over the company.

This Act necessitates most reporting firms to submit data on each beneficial owner to FinCEN, under the U.S. Treasury. FinCEN manages a database housing information on documented beneficial owners from reporting entities.

LLC members, considered beneficial owners, must file a new report with federal agencies, furnishing basic company and owner contact details. Single or multiple-member LLCs fall under this requirement, necessitating identification of all potential beneficial owners in the Beneficial Ownership Information Report, including their specifics.

Business alterations in owners or controlling members, or their data, mandate updated beneficial ownership reporting. Instances include a minor member reaching adulthood or a shift to tax-exempt status. Correcting initial errors or amending formation documents also requires an updated report. Businesses get 30 days post-change or amendment to file this updated Beneficial Ownership Information Report.