The newly enacted Corporate Transparency Act (CTA) is now in full force and requires unprecedented federal reporting requirements by most small businesses (see our December 2023 article covering all of this more broadly, including our more recent article covering recent federal court challenges to its constitutionality).
As reporting companies, business owners/managers, and company applicants navigate this new terrain, they will need to determine whether to obtain a FinCEN identifier (FinCEN ID), which is a 12-digit unique identifying number that can be used on Beneficial Ownership Information reports (BOIR) made to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
Obtaining a FinCEN ID can be useful for individuals who do not want the reporting company to have access to their personally sensitive information upon initial filing and whenever updates are needed. Their use also reduces the reporting obligations of the company itself. Reporting companies are required to promptly notify FinCEN of updates to the personal information of its beneficial owners and those with substantial control; that is, except for those who have obtained their own FinCEN ID. Obtaining the FinCEN ID can be especially attractive to those individuals who expect to be involved in multiple BOIR filings, as it significantly reduces the time and effort (and disclosure of information) required for each filing and any updates needed throughout the life of the reporting company.
Company applicants (e.g., attorneys and paralegals who help the reporting company initially file the entity with the applicable secretary of state on or after January 1, 2024) may also wish to obtain a FinCEN ID for some of the reasons noted above, though they do not have an ongoing obligation to update the BOIR as their information changes. At present, reporting companies may not generally have as much incentive to obtain the ID.
The main drawback to obtaining a FinCEN ID is the assumption of an ongoing (as in, till death do you part) requirement to promptly report any changes or inaccuracies to FinCEN. Thus, certain individuals may understandably be hesitant to obtain such an identifier; the benefits it offers simply may not outweigh the ongoing reporting obligations for everyone. It is possible that FinCEN will allow individuals to deactivate their FinCEN ID (e.g., if the individual is no longer part of any reporting companies or working as a company applicant), but that is not currently allowed under the CTA.
It is important for individuals owning or controlling reporting companies to keep in mind that they cannot altogether avoid reporting their personal information. Reporting will be required, whether that reporting is made directly to FinCEN (if a FinCEN ID is obtained) or to the reporting company (if no FinCEN ID is obtained). Regardless, those who take the time to weigh their options stand the best chance of finding the “lesser evil” and being satisfied with their decision.
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