As a small business owner, you need to understand the Financial Crimes Enforcement Network (FinCEN) beneficial owner reporting requirements. This regulation aims to enhance transparency and combat financial crimes such as money laundering and terrorism financing.
Small businesses are now required to disclose information about their beneficial owners to FinCEN. A beneficial owner is an individual who directly or indirectly owns or controls a significant portion of the business, typically defined as owning 25% or more of the equity or having “substantial control” over the management of the company.
The following criteria are used in evaluating if an individual has “Substantial Control” over a company:
Having a title within the company such as president, chief executive officer, or management member of the company, or anyone who performs duties similar to these roles.
Authority to appoint or remove officers or a majority of directors.
Being an “important decision-maker” of the company.
Other criteria as outlined in FinCen’s Small Entity Compliance Guide.
Under the new regulation, small businesses must provide the following details for each beneficial owner:
Full legal name
Date of birth
Residential or business address
A government-issued identification number
Additionally, businesses need to report any changes to their beneficial ownership information within a specified timeframe. Failure to comply with these reporting requirements can result in severe penalties, including substantial fines and legal consequences.
Penalties for non-compliance with FinCEN beneficial owner reporting can vary depending on the severity and duration of the violation. Small businesses may face civil penalties of up to $591 per day for willful violations or negligent failures to report accurate and complete information. Moreover, knowingly providing false or misleading information can lead to criminal penalties, including fines of up to $10,000 and imprisonment for up to two years.
It's essential for small business owners to prioritize compliance with FinCEN beneficial owner reporting to avoid these potential penalties and safeguard their businesses' reputation and financial integrity. As a CPA, I recommend taking the following steps to ensure compliance:
Understand the definition of a beneficial owner and identify individuals who meet this criteria within your business.
Gather accurate and up-to-date information about each beneficial owner, including their personal details and ownership stake.
Make sure your FinCEN beneficial owner report if filed by December 31, 2024, and promptly update any changes to the ownership structure.
The government is taking this requirement very seriously and no small business should procrastinate as the penalties can be substantial. If you are unsure how to accurately report the required information, you should contact our office or some other trusted professional for help.
