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IRA Financial Group Blog

Government Coming for your Entity? – Episode 321

Adam Talks
4 Minute Read

In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses a FinCEN Notice of Proposed Rulemaking that would require entities to disclose info about their owners, to help curb illicit activities while hiding behind a “shell corporation.”

FinCEN, the Financial Crimes Enforcement Network, is looking to make sure all businesses with activity in the US are on the up and up. This goes for both domestic businesses and foreign companies who do business on US soil. Currently, there are only a few states that require one to show information about the beneficial owner(s) of a company. That all might change soon.

Is the Government Coming for your Entity?

If adopted, FinCEN believes there would be 30 million current businesses who need to disclose information about the company’s owner in the first year. Plus, an additional four million annually. The whole aim of this rule is to prevent illegal activities from unknown companies. If you’ve watched any TV crime show, you know how seemingly hard it is to track down an owner of a company. Owners of these so-called shell companies can be near impossible to track down.

Obviously, corrupt individuals will go through a lot not to be found out. The average American business owner shouldn’t have to worry about this ruling. After all, most hard working individuals don’t have anything to hide. If and when information is needed about the business owner, it will happily be given.

There will be a small fee involved for the filing, around $50, which is a fraction of what many states charge for LLC formation. The beneficial ownership information (BOI) report should be filed in a timely matter to help the government and law enforcement combat corruption, money laundering, terrorism financing, and the like. No longer will one be able to use a legal entity to hide illegal activity.

Who Will Need to File the Report?

There are two categories of individuals that must file the report:

(1) the beneficial owners of the entity; and

(2) individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business.

There are two types of reporting companies: domestic and foreign. If you formed a corporation, LLC or similar business entity, with your state, you will need to file. Further, if you have a business which was formed legally in another country, and are registered to do business in the US, you must also file the report.

The types of businesses may include corporations, limited liability partnerships, business trusts and LLCs. Certain trusts, such as a grantor trust, would not need to file because they file a formation document. Other exemptions include banks, credit unions and insurance companies.

Who is a Beneficial Owner?

In the rule, a beneficial owner is “any individual who (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.”

One of the major points of the rule is to also cut back on hiding behind a puppet. Essentially, anyone who has “substantial control” of a business would have to be on the filing. No more loopholes to just have a figure as the owner, while someone else is making the decisions.

There are a few exemptions of the beneficial owner, such as minor children, nominees, and creditors.

Further, you must identify the company applicant, which is who files the document that forms the entity, or, if it is a foreign company, who files to do business in the US. Anyone who controls this filing will also be considered a company applicant. Again, full transparency about your business is required!

The BOI Report

So, what type of information is required on the beneficial ownership report? Essentially, you will need to present four pieces of information about each owner and company applicant – name, birth date, address and the unique ID number from an acceptable identification document (and a photo of the document).

Here are the details of the BOI report:

  • (A) The full legal name of the individual;
  • (B) The date of birth of the individual;
  • (C) The complete current address consisting of:
  • (1) In the case of a company applicant who files a document described in paragraph (e) of this section in the course of such individual’s business, the business street address of such business; or
  • (2) In any other case, the residential street address that the individual uses for tax residency purposes;
  • (D) A unique identifying number from one of the following documents:
  • (1) A non-expired passport issued to the individual by the United States Government;
  • (2) A non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual;
  • (3) A non-expired driver’s license issued to the individual by a State; or
  • (4) A non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the documents described in paragraph (b)(1)(ii)(D)(1), (2), or (3) of this section; and
  • (E) An image of the document from which the unique identifying number in paragraph (b)(1)(ii)(D) of this section was obtained, which includes both the unique identifying number and photograph in sufficient quality to be legible or recognizable.

Current businesses would have one year from the effective date to file the report. New businesses would have 14 days after formation to file. Failure to file in a timely fashion would subject one to $500 penalty per day, and/or up to a $10,000 fine and possible two year jail time. Not only does this apply to the company itself, but the beneficial owners as well.

Conclusion

Obviously, the government is cracking down on unscrupulous behavior happening on US soil. If you are a business owner, you must ensure that your company files the required report if and when this rule is passed. Be sure to listen the episode as Adam goes into greater detail about what this means for the American business owner.

Thanks again for listening to Adam Talks, and take a look at our podcast network for more information about this an other exciting topics.

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