Have you heard of Beneficial Ownership Information (BOI) Reporting? If not, you’re not alone! This new reporting requirement for an estimated 32 million businesses begins in 2024, but understanding the rules should start now.

Background

The Corporate Transparency Act (CTA), enacted in 2021, aims to deter illegal activities by those who hide their identities using shell companies and will aid law enforcement in tracking and prosecuting such activities. The CTA requires certain U.S. and foreign entities to report information about their “beneficial owners” to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). “Beneficial owners” are the individuals who directly or indirectly own or control a company. Treasury and FinCEN provided final rules, but many are still unaware of their upcoming reporting requirements.

Reporting Due Dates

Filing due dates for initial beneficial ownership information (BOI) reports depend upon the company’s start date:

• Existing companies created or registered to do business in the U.S. prior to January 1, 2024 have a January 1, 2025 due date. Initial reports will be accepted after January 1, 2024.
• New companies created or registered to do business in the U.S. on or after January 1, 2024, and before January 1, 2025 have 90 calendar days to file.
• New companies created or registered to do business in the U.S. on or after January 1, 2025 have 30 calendar days to file.

Subsequent reports are due within 30 calendar days after a change occurs to previously reported information. There are no fees to submit reports.

Who Must File

Reporting companies required to file can be either domestic or foreign entities and include corporations, LLCs, or any other entity created or registered by filing with the secretary of state. However, there are several exceptions to filing, including:

• Certain banks and credit unions
• Certain entities registered with the Securities and Exchange Commission
• Certain types of venture capital fund advisers
• Certain tax-exempt entities
• Large operating companies with at least 20 full-time employees, more than $5 million in gross receipts, and an operating presence at a physical office within the U.S.
• Subsidiaries of entities not required to file

The reason given that these entities and more are exempt is that many are already regulated or disclose ownership information to the government.

Reporting Information

Reports will ask for information on the company itself (such as name, address, and EIN) and its “beneficial owners.” For the purpose of the BOI reports, “beneficial owner” means any individual:

• Who directly or indirectly exercises “substantial control” over the reporting company, or
• Who directly or indirectly owns or controls 25 percent or more of the company’s ownership interests.

“Substantial control” can mean someone who directs, determines, or exercises substantial influence over important company decisions. For example, any senior company officer is deemed to have substantial control.

In addition to reporting beneficial owner information, companies created or registered on or after January 1, 2024 will also include information on up to two “company applicants.” These are the following two people:

• The individual who directly files the document that creates, or first registers, the reporting company; and
• The individual that is primarily responsible for directing or controlling the filing of the relevant document.

The same person may satisfy both descriptions, but in no case should there be more than two company applicants reported. Companies created or registered prior to January 1, 2024 do not have to report information on company applicants.

Companies required to file will report electronically on FinCEN’s website the name, date of birth, address, and an identifying number (driver’s license, passport, etc.) for beneficial owners and company applicants. While stored on a nonpublic database, this information may be shared by FinCEN with certain permitted federal, state, and foreign authorities upon request.

Potential Impact

Despite the looming deadline, many businesses are unaware of FinCEN’s new requirements and could miss the reporting window. Those who willfully fail to file may face civil penalties of $500 per day, and criminal penalties of up to $10,000 and/or up to 2 years of jail time. Industry and congressional leaders have expressed concern over the lack of education and communication surrounding the new filings, in addition to complexity brought about by the final rules. Delaying the implementation date has been suggested in recent committee hearings, but as of now the 2024 start date remains in place.

More information can be found within FinCEN’s BOI FAQs and on the BOI landing page.

Published: 7/20/2023

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