Beneficial Ownership Information
New Federal Requirements which may impact your business entity
In 2021, Congress passed the Corporate Transparency Act (CTA), which requires each business entity to file its beneficial ownership information as part of the U.S. government’s efforts to combat illicit activity such as corruption, money laundering, terrorist financing, and tax fraud through shell companies or other opaque ownership structures.
As of January 1, 2024, all newly formed and many existing corporations, limited liability companies, limited partnerships, and other entities formed by a filing with a state Secretary of State or similar authority will be required to file its Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury.
Key Deadlines & Enforcements
- Existing business entities will have 1 year to comply with the Corporate Transparency Act (between January 1, 2024 and January 1, 2025).
- New Businesses formed on or after January 1, 2024 will have 30 days to comply.
- Business Information Change or Correction addendum is required within 30 days after any change in previously-reported data.
- Failure To Comply may result in a $500 fine for each day the business is in violation and/or a possible felony with up to 2 years in prison.
When is the initial beneficial ownership information (BOI) report required to be filed with FinCEN?
Any domestic or foreign business entity formed on or after January 1, 2024, must file a BOI report within 30 calendar days of either receiving actual notice that its formation has become effective or the secretary of state or similar office first providing public notice that it has been formed, whichever occurs first.
A domestic or foreign business entity formed prior to January 1, 2024, and an entity that registered as a foreign reporting company prior to January 1, 2024, must file an initial report by January 1, 2025.
What type of entity is required to report beneficial ownership information (“BOI”)?
Certain businesses, referred to by FinCEN as “reporting companies,” will be required to report beneficial ownership information to FinCEN. Reporting companies include domestic and foreign (formed outside the U.S.) businesses.
Domestic reporting companies are corporations, limited liability companies, and other entities that are formed by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Foreign reporting companies are corporations, limited liability companies, and other entities that are formed in a foreign country and are registered to do business in the United States or in any Tribal jurisdiction by submitting a document with the secretary of state or any similar office under the law of a U.S. state or Indian tribe.
A reporting company is required to file the BOI report unless an exemption applies.
Who is exempt from reporting requirements?
The CTA lists 23 categories of entities that are exempt from reporting. View the list of exemptions here: https://www.fincen.gov/boi-faqs
Many of the exempt categories are already subject to similar regulation such as banks, credit unions, tax-exempt entities, public utilities, and large operating companies.
Business entities that do not fall within the scope of the reporting requirements include sole proprietorships, some general partnerships, foreign entities not registered to do business in the U.S., unincorporated associations, and wealth planning trusts.
A “large operating company” is exempt from reporting requirements.
For an entity to qualify as a “large operating company”, the following criteria must be met:
- Employs 20 or more full-time employees in the United States.
- Has an operating presence at a physical address within the United States.
- Filed a federal income tax or information return in the United States for the previous year demonstrating more than $5M in gross receipts or sales. This excludes gross receipts or sales from sources outside the United States.
Who is a beneficial owner of a reporting company?
A beneficial owner is any individual (1) who directly or indirectly exercises “substantial control” over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.
An individual can exercise “substantial control” over a reporting company if they direct, determine, or exercise substantial influence over important decisions the reporting company makes. This includes senior officers in the reporting company or individuals who have authority over the appointment or removal of senior officers or a majority of the board.
“Ownership interests” generally refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock as well as more complex instruments.
For additional information on “substantial control” and “ownership interests” please review the language in the Beneficial Ownership Information Reporting Regulations: https://www.govinfo.gov/content/pkg/FR-2022-09-30/pdf/2022-21020.pdf or on the FinCEN website: https://www.fincen.gov/boi-faqs
What information is required for the Beneficial Ownership Information?
Reporting Company Information
Reporting companies must provide the following information about the company:
- The full legal name of the company;
- Any other trade names used by the company;
- The street address of the company’s principal place of business (a P.O. box number or third-party address will not be accepted);
- A foreign company that does not have a principal place of business must report the address the company uses to conduct its business in the United States
- The jurisdiction in which the company was formed or registered; and
- An IRS issued Taxpayer Identification Number (TIN) or Employer Identification Number (EiN).
- Foreign reporting companies without a TIN must report a tax identification number issued by a foreign jurisdiction and identify the issuing jurisdiction.
Beneficial Owner Information
Reporting companies must provide the following information about their beneficial owners:
- Full legal name;
- Date of birth;
- Current residential or business street address;
- A unique identifying number from a non-expired, government-issued photo ID, such as a U.S. passport or state driver’s license (a foreign passport will be accepted if no U.S. issued ID is available); and
- An image of the government-issued photo ID from which the number was provided.
Are there any exceptions to the definition of “beneficial owner?”
There are a few limited exceptions to who qualifies as a beneficial owner. Under the Rule, minor children (provided a parent or legal guardian is reported as a beneficial owner), nominees, employees (excluding senior officers), future inheritors, and creditors do not qualify as beneficial owners.
Beware of potential scam websites! This new filing requirement is likely to result in scam websites that trick internet users and business owners to enter their beneficial ownership information into a scam website. They may lure users through many communication channels, such as social media, email, and text messaging. Search results are sometimes manipulated through search engine optimization methods, leading to malicious sites appearing in top positions.
Reporting companies should not report beneficial ownership information to any organization except for a known reporting agency or FinCEN directly. Websites are often set up to spoof a legitimate site. This is done by using a domain name that looks or sounds like legitimate site addresses. For example, instead of IRS.gov, a spoof site might use IRS.com or IRS.org.
Click here for more information about this mandatory filing requirement