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The US Government Is Requiring Reporting of Ultimate Beneficial Owners by 2025

Venture360 has been tracking this level of detail for our clients since 2015! Here's what you need to know.

Thursday, August 3, 2023
Written by Venture360 - Finance Team
Industry News
The US Government Is Requiring Reporting of Ultimate Beneficial Owners by 2025

What is the Corporate Transparency Act?

Primarily serving as an anti-money laundering statute, the Corporate Transparency Act addresses the concealment of ownership for corporations, LLCs, and comparable entities within the United States. The intention is to aid tax fraud, money laundering and various illicit activities by malicious entities. Congress asserts that the establishment of federal regulations to gather beneficial ownership data is imperative to safeguard the nation's interests and enhance endeavors to combat such unlawful behaviors.

What is Beneficial Ownership Reporting (BOI)?

Issued by the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. treasury Department, Beneficial Ownership Reporting requires the provision of personally identifiable information of underlying investors by business proprietors. Despite its existence for several years, the regulations mandating the reporting of beneficial ownership information have been recently issued by FinCEN.

Which companies have to file a Beneficial Ownership Report?

Companies known as "reporting companies," must disclose their beneficial ownership details to FinCEN. These reporting companies are any corporation, LLC, or any other entity established through the submission of documentation to a secretary of state or similar body either domestically or overseas.

In short, all of the startups you invest into, along with the funds, SPVs, and other vehicles you invest through or as.

When does the initial BOI report have to be filed?

A domestic reporting company established prior to January 1, 2024, is required to submit its initial BOI report by no later than January 1, 2025.

Are there penalties for noncompliance with the BOI?

Non-compliance with beneficial ownership information reporting requirements can result in hefty fines and penalties for businesses. If a company neglects to submit a mandatory beneficial ownership report or fails to make necessary amendments within the stipulated filing period, it could incur a daily fine of $500, with the maximum penalty capped at $10,000.

Engaging in deliberate failures or purposefully providing incorrect information constitutes a felony, carrying a potential prison sentence of up to two years. In cases where these actions coincide with anti-money laundering violations, the associated penalty escalates to a maximum of 10 years' imprisonment.

Are there any exemptions?

Yes, but they are limited. The Beneficial Ownership Information Reporting requirement is waived for 23 categories of entities under the Corporate Transparency Act. To see an official list of exemptions, please visit the FinCEN FAQ site.

How do I prepare for the Corporate Transparency Act?

These reporting requirements will impact organizations at all levels of venture investment, from startup companies to the funds and SPVs that provide capital, reaching through passthrough entities to the underlying investors.

The good news is that if you use Venture360's reporting software, compliance is easy! Our software was structured to report back to the ultimate beneficial owner to provide consolidated portfolio monitoring, but that same feature automates UBO reporting. You won't have any new action required on your part!

If your fund or SPV syndicate is not using Venture360 yet, let's talk about how we can not only ensure compliance with these new reporting requirements, but streamline accounting, tax, and portfolio monitoring while minimizing your fund's expenses.