In a move towards greater transparency, the United States Treasury Department has finalized a rule requiring millions of small businesses to disclose ownership information to the government. This regulation, a cornerstone of the Corporate Transparency Act, aims to curb illicit activities by empowering law enforcement to unravel the anonymity often exploited by criminals and terrorists operating through shell companies.
The scope of this rule covers businesses with fewer than 20 employees and under $5 million in annual revenue.
Beneficial owners, defined as individuals holding significant ownership or control over a business, must furnish the following details:
Date of birth
Social security number or taxpayer identification number
The Financial Crimes Enforcement Network (FinCEN), a Treasury Department agency dedicated to combating financial crime, will collect and manage this information. Law enforcement agencies can access this data upon valid requests.
The rule has taken effect on January 1, 2024. Non-compliance could incur significant civil penalties reaching up to $25,000 per day.
Proponents applaud the rule's potential to empower law enforcement against criminal elements who exploit anonymous business structures. Additionally, they believe it fosters a level playing field by demanding equal transparency from all businesses.
Opponents express concerns about the potential burden imposed on small businesses, fearing it may discourage entrepreneurial endeavors.
This regulation represents a significant shift for small businesses, necessitating proactive preparation for compliance. Here are some crucial steps:
1. Identifying Beneficial Owners: Accurately determine who qualifies as a beneficial owner within your business, considering both ownership stake and control mechanisms.
2. Information Gathering: Collect the required details for each beneficial owner, including name, date of birth, social security number or taxpayer identification number, and residential address.
3. Filing with FinCEN: Submit the compiled information to FinCEN electronically (Form W-8BEN-E) or via mail.
Existing companies (companies created prior to January 1, 2024) have one year to file the paperwork; that deadline is January 1, 2025 (see How To Launch and Grow a Small Business in 2024). New companies created on of after January 1, 2024 must file paperwork within 90 days of its creation or registration. See the actual press release from the government on the small business ownership beneficial ownership information.
This new rule presents a noteworthy change for small businesses. By proactively following these steps and staying informed, businesses can confidently navigate this new regulatory development and ensure compliance.
The compliance element of the small business operations is an important part of strategic planning, fundraising. In M&A and business development, partnering with non-compliance business may create risk for your small business and being aware of this new requirement is key during the diligence process.
NOTE: Do NOT rely on this post for compliance. Seek advise from your financial adviser, accountant/CPA, lawyer or tax professional on this matter. Also, go to the original source: https://www.fincen.gov/boi-faqs
Aleksey Krylov is a serial entrepreneur and a seasoned Chief Financial Officer. He works with small businesses on fundraising, business development and M&A.