More than 30 million small companies will be subject to a new reporting requirement in 2024 — and apparently, many of them don’t even know it.
The rule, which applies to most non-financial companies doing business in the United States with less than $5 million in annual sales from U.S. sources, is hardly onerous. It merely requires companies to report very basic identifying information about “beneficial owners,” or individuals who exercise substantial control over the entity, or own at least 25% of it.
The new reporting requirement is part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from ill-gotten gains through shell companies or other opaque ownership structures, according to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), with which the disclosures must be filed.
As required under the Corporate Transparency Act (CTA), which was enacted into law on Jan. 1, 2021, so-called “reporting companies” must report each beneficial owner’s legal name, birth date, home address, an identifying number from a driver’s license, state ID, or passport, and an image of the document that number is from.
A survey of 669 U.S. companies, by information services company Wolters Kluwer, found that, while the rule will apply to half (51%) of the participants, 74% of the ones for which the rule will be applicable indicated that they only became aware of the rule upon taking the survey.
Awareness of the rule is even spotty among law and accounting firms, 328 of whom also participated in the survey, with 46% saying they were unaware of the rule.
Failure to report will result in a civil penalty of up to $500 for each day of noncompliance, plus a fine of up to $10,000. Willful failure to comply could trigger more severe criminal sanctions, including up to two years imprisonment.
Historically, many small U.S. businesses have been able to organize and operate without disclosing their ownership or management information. FinCEN estimates that the rule will impact 32.6 million reporting companies in 2024 alone.
Existing companies that are subject to the rule have until Jan. 1, 2025, to file their initial beneficial ownership information report. Companies that are created on or after Jan. 1, 2024, will have 30 days to file, from the time the company receives notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.