U.S. private companies will report on their beneficial owners

From 1 January 2024, companies in the USA will be obliged to submit their beneficial ownership information to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN). Reports will be submitted electronically through the agency’s website. The reported information will not be made publicly available.

This measure was legislated back in 2020 to prevent abuse and crimes using anonymous “shell companies” and to bring U.S. laws into line with FATF international standards.

Beneficial ownership information disclosure

As a general rule, the following entities must report their beneficial owners:  

• U.S. Corporations; 
• U.S. Limited Liability Companies (LLC); and 
• foreign companies registered to do business in the U.S.

Securities issuers who report under the Securities Exchange Act, banks, brokers, insurance companies, and several other categories are exempt from the reporting. 

Thus, the new requirements apply to most private U.S. companies, including Delaware corporations.

Who is a beneficial owner?

A beneficial owner of a company is any natural person who, directly or indirectly:

• Exercises significant control over the company; or
• Owns or controls at least 25% of the ownership interests in the company.

A person can be a beneficial owner if he or she falls under one (any) or both of the above reasons. A company may have one or several beneficial owners (including those recognized as such for different reasons).

An ownership interest may be in the form of equity, stock, voting rights, capital or profit interest, options to buy any of the foregoing, and other instruments, contracts, or mechanisms used to establish ownership.

What does “significant control” mean? 

A natural person exercises significant control over a company if such a person –   

1. is a senior officer of the company (for example, president, chief executive officer (CEO), chief financial officer (CFO) and others) or
2. has the authority to appoint or remove any senior officer or a majority of the board of directors or
3. is an important decision-maker or 
4. possesses any other form of significant control over the company. 

An “important decision-maker” is a natural person who directs, determines, or substantially influences the decisions the company makes on the matters of:    

• business (nature, scope and types of activity, making significant contracts);
• finances (disposal of the company’s assets, major expenditures, investments, borrowings, directors’ remunerations); 
• structure (reorganization, mergers, amending constitutional documents and policies). 

What information on beneficial owners a company must report?

Information on the reporting company	Full legal name; All trade names and “doing business as” names; Complete address of the principal place of business in the United States; State or foreign jurisdiction in which the company was formed; Taxpayer Identification Number (TIN) issued by the Inland Revenue Service.
Information on each beneficial owner (and the applicant)	Full name; Date of birth; Complete residential address; Unique identifying number, issuing authority and image of one of the following valid ID documents: U.S. passport; State driver’s license; ID document issued by a state or local government; Foreign passport (if the individual has none of the above).

Information on applicants 

The U.S. companies created on or after 1 January 2024 must report on their “applicants” along with the beneficial owners. Companies formed before this date have no such obligation. 

An applicant is a natural person who files documents to register a company. A legal entity cannot be reported as an applicant. An applicant can be either the one who directly files the document or the one who directs or controls this filing. If both of them participated in company formation, information should be provided about both such persons. A company must report at least one applicant and, at most, two.

Filing deadlines for the first report on beneficial owners

Category	The due date for the initial report
Companies existed as of 1 January 2024 (created before this date)	Before 1 January 2025.
Companies created on or after 1 January 2024 and before 1 January 2025	Within 90 days after receiving a notice that the company is created or registered.
Companies created on or after 1 January 2025	Within 30 days after receiving a notice that the company is created or registered.

In case of changes in the submitted information, the company must file an updated report within 30 days of the date of the change. 

Sanctions for failure to report the beneficial ownership information

The willful failure to report complete or updated beneficial ownership information to FinCEN or the provision of false or fraudulent information may result in:

• civil penalties of up to USD 500 for each day that the violation continues, or 
• criminal penalties, including imprisonment for up to two years and/or a fine of up to USD 10,000. 

Senior officers of a company that fails to file a required report may be held accountable for that failure.

Actions to take

To comply with the new requirements and to avoid penalties, we recommend to:

• Find out whether the company has to report on its beneficial owners.
• Identify persons who are the company’s beneficial owners and collect the necessary and up-to-date information about them.
• Prepare to submit the report within the prescribed timeframes (depending on the company’s creation date). 

Step-by-step instructions on identifying beneficial owners (both in the case of equity participation and significant control) and other matters are provided in the Guidance issued by FinCEN.