The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, represents a significant step forward in the fight against financial crimes in the United States. A critical component of the CTA is the requirement for certain corporations, limited liability companies (LLCs), and similar entities to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), effective as of January 1, 2024. But what does beneficial ownership mean and how does this requirement impact businesses? Let’s take a look.

What is Beneficial Ownership?

Beneficial ownership refers to the individuals who ultimately own or control an entity. Under the CTA, a beneficial owner is defined as an individual who directly or indirectly exercises substantial control over the entity or owns or controls at least 25% of the ownership interests.

The Importance of Beneficial Ownership Information

The primary goal of collecting beneficial ownership information (BOI) is to enhance transparency in corporate structures. This transparency is crucial for preventing illicit activities such as money laundering, terrorist financing, and tax evasion. By having a clearer understanding of who controls and benefits from entities operating within the U.S., law enforcement agencies can more effectively track and combat financial crimes.

Impact on Businesses

The requirement to report beneficial ownership information places new obligations on businesses. Companies that fall under the CTA’s purview must file reports with FinCEN containing details about their beneficial owners, including full legal names, dates of birth, addresses, and identification numbers from acceptable identification documents.

This requirement aims to create a comprehensive database of beneficial ownership information, accessible to law enforcement and other authorized parties. While this increases compliance costs for businesses, it also provides a level of protection against being unwittingly used for illegal activities.

Sound burdensome? Yes, but the Corporate Transparency Act’s beneficial ownership information requirement is a pivotal measure in enhancing financial transparency and integrity. Businesses must adapt to these new reporting obligations to comply with federal law and contribute to a more secure financial environment. Want some help? Propel can help you protect your business today by filing your BOI report for you. We can also walk you through the process to get your business in full compliance. Don’t delay! Avoid costly fines and legal risks with our total FinCEN compliance solution.