What you should know about federal bank account requirements on “new accounts” for legal entities

Forming a new business can be an exciting, yet all-consuming, endeavor. Once the paperwork is filed and a legal entity is formed, most new companies will want to start their operations as soon as possible. That likely includes opening up one or more accounts with a financial institution, such as a bank.

But legal entities may be formed to conduct and disguise criminal activity. The illicit uses range from terrorist financing and tax evasion to money laundering and corruption. In an effort to prevent illegal practices, federal regulations require banks to collect an increasing amount of information. And the information is usually collected when a new legal entity tries to open its first bank account.

So what information—and from whom—is required to open a new bank account for your entity?

Beneficial owners of a new entity are required to provide their name, address, birthdate, and social security number (or passport number in the case of foreign persons). Some financial institutions may also require a copy of a driver’s license or some other identifying document.

Beneficial owners are defined as follows: i) each individual who owns 25 percent or more of the equity interest of the legal entity customer; and ii) an individual with significant responsibility for managing the legal entity customer (think CEO, CFO, COO, Managing Member, President, Vice-President, or Treasurer). The number of individuals considered a beneficial member will vary for each legal entity. And a person may qualify under both types of beneficial member.

Entities are required to keep the financial institution apprised of any change in the beneficial owners. Information for new beneficial owners should be provided to the financial institution in a timely manner.

Starting a new business is an exciting venture. But the required paperwork, disclosures, and registration can become confusing, especially when you just want to get to work. The attorneys at Jones Obenchain LLP can guide you through the process of forming your business and ensure you’re off to a great start.