An Overview of New Beneficial Ownership Reporting Rules for 2024

On January 1, 2024, new beneficial ownership reporting rules will come into effect. These rules, which aim to prevent financial crime by establishing the identity of individuals who own companies, are poised to affect many businesses. 

To ensure that they fulfill their reporting obligations, business leaders must understand exactly what these reporting requirements are. Only with this knowledge can they determine whether they are obliged to disclose their beneficial owners. 

In this overview, we outline what a beneficial owner is and provide a summary of the reporting process. We will also explore the exceptions to these requirements and share a couple of nuances in the reporting framework that have the potential to cause issues for business owners. 

What is a Beneficial Owner?

The Financial Crimes Enforcement Network, more commonly known as FinCEN, is the government agency that affected companies must submit beneficial ownership reports to. They define a beneficial owner as:

“A beneficial owner is any individual who exercises substantial control over your company, or who owns or controls at least 25 percent of your company.”

Businesses are required to report the identity of any individuals who meet the above definition. For each beneficial owner, the business must report the individual’s name, date of birth, and address. They must also provide a copy of a government-issued ID belonging to that individual, such as a driver’s license or passport. 

New businesses set up in 2024 must also provide this information for company applicants: individuals involved in establishing the entity. In many instances, a company applicant would be an attorney who assisted with the company setup and registration process. 

What Are the Exceptions to the Beneficial Ownership Reporting Process?

There are exceptions to this rule that ensure many businesses will not have to submit these reports. Generally speaking, any entity that has registered with their state’s Secretary of State or is a foreign company registered to do business in the United States must file.  

However, in practice, the new beneficial ownership reporting rules are primarily intended for small corporations and LLCs. Companies defined as large operating companies are exempt from beneficial ownership reporting requirements. To be considered as a large operating company, businesses must meet the following requirements:

• Over 20 full-time employees located in the United States
• Over $5 million in gross receipts (as disclosed on the previous year’s federal tax return)
• Physical operating presence in the United States

Additionally, there are 23 categories of entities that are exempt from reporting requirements. A full list is available on the FinCEN website, but some of the most common examples of exempt organizations include:

• Banks
• Credit unions
• Insurance companies
• Tax-exempt entities
• Public utilities

Between them, these exemptions mean that many established companies will not have to report their beneficial owners. However, for those that do, there are a couple of notable issues to be aware of. 

The Beneficial Ownership Reporting Process

These new requirements go into effect on January 1, 2024. If a company was established prior to this date, it must file by January 1, 2025. This filing only has to be made once, unless there is a change to the business’s ownership or an error is found in the previous filing. Reports can be filed electronically through the FinCEN website from January 1, 2024 onwards. 

Businesses established after January 1, 2024, must file within 90 calendar days of receiving confirmation from their state’s Secretary of State (or equivalent office) that the entity was registered. After January 1, 2025, this will decrease to 30 days. 

If businesses make substantial changes to their beneficial ownership structure, for example by accepting an investment in exchange for an equity stake over 25%, they must correct their previous report within 30 days of the change occurring. 

Smith + Howard: Trusted Accounting and Tax Partner

At Smith + Howard, our professionals invest significant time and resources into staying up to date on the latest laws and regulations that may impact our clients.

If your business qualifies under the beneficial ownership reporting requirements and you need advice or assistance with the process, please contact a Smith + Howard advisor today.