Background

In 2021, Congress enacted the Corporate Transparency Act (“CTA”) which establishes a Beneficial Ownership Information (“BOI”) reporting requirement for certain entities, primarily corporations and limited liability companies, created in or registered to do business in the United States. The CTA authorized the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury to collect BOI information and disclose it to authorized government authorities and financial institutions, subject to certain safeguards and controls. FinCEN adopted a final Rule implementing the beneficial ownership information reporting requirements on September 30, 2022, with an effective date of January 1, 2024.

Purpose

The purpose of the BOI reporting requirements is to curb certain financial crimes, such as money laundering, by requiring entities to report the identities of those who ultimately control and benefit from these entities. This BOI is expected to prove essential to law enforcement and national security agencies as they investigate and help prevent criminals from hiding illicit money or other property in the United States.

Reporting Rule

The Beneficial Ownership Information Reporting Rule (the “Reporting Rule”) requires certain entities to report information on the entity itself and two categories of individuals associated with the entity, namely Beneficial Owners and Company Applicants. All BOI Reports must be filed electronically using FinCEN’s secure filing system which began accepting BOI Reports on January 1, 2024. There is no fee for submitting your BOI report to FinCEN.

Who has to file? 

The Reporting Rule requires all “reporting companies” to file BOI Reports within certain specified timeframes. A reporting company is an entity that is either a “domestic reporting company” or a “foreign reporting company” and does not qualify for an exemption. A domestic reporting company is a corporation, a limited liability company (LLC), or another entity which was otherwise created in the United States by filing a document with a Secretary of State or any similar officer under the law of a State or Indian Tribe. A foreign reporting company is an entity created under the laws of a foreign country, but which has registered to do business in any U.S. State or Tribal jurisdiction.

Who is exempt? 

There are twenty-three (23) specific types of entities which are exempt from BOI Reporting. These include entities traded on U.S. stock exchanges, banks, credit unions, governmental authorities, insurance companies, public utilities, accounting firms, and tax-exempt entities (primarily entity types which already have some form of reporting requirement), among others. A “large operating company” also qualifies for an exception if all six (6) of the following criteria apply:

1. Entity employs more than 20 full-time employees.
2. More than 20 full-time employees are employed in the U.S.
3. Entity has an operating presence at a physical office within the U.S.
4. Entity filed a federal income tax or information return in the U.S. for the previous year demonstrating more than $5,000,000.00 in gross receipts or sales.
5. Entity reported this greater than $5,000,000.00 amount as gross receipts or sales on IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS Form.
6. When gross receipts or sales from sources outside the U.S. are excluded from the entity’s amount, the amount remains greater than $5,000,000.00.

Inactive entities are also exempt from the reporting requirement.  To be considered inactive, all six (6) of the following criteria must apply:

1. The entity existed on or before January 1, 2020.
2. The entity is not engaged in active business.
3. The entity is not owned, directly or indirectly, wholly or in part, by a “foreign person.”
4. The entity has not experienced any change in ownership in the preceding twelve-month period.
5. The entity has not sent or received any funds greater than $1,000, directly or indirectly, in the preceding twelve-month period.
6. The entity does not otherwise hold any assets, wherever located, including ownership in another entity.

What is the Reporting Timeline? 

• Entities created prior to January 1, 2024, have until January 1, 2025, to report BOI.
• Entities created on or after January 1, 2024, and before January 1, 2025, must report BOI within ninety (90) calendar days of creation.
• Entities created on or after January 1, 2025, must report BOI within thirty (30) calendar days of creation.

An entity is only required to further report if there is a change in beneficial ownership, there is an update to reported information, or if a correction to the reported information is necessary, all of which must be reported within thirty (30) days of occurrence.

Are there penalties for failure to accurately report? 

Yes, a failure to report complete or updated BOI to FinCEN, or the attempt to provide false or fraudulent BOI may result in civil or criminal penalties, including civil penalties of up to $500.00 per day for as long as the violation continues, or criminal penalties, including imprisonment for up to two (2) years and/or a fine of up to $10,000.00.

Who is a Beneficial Owner? 

A Beneficial Owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least twenty-five percent (25%) of the ownership interest of a reporting company.  An individual is said to exercise substantial control over a reporting company if the individual meets any of the following criteria: (1) is a senior officer, (2) has authority to appoint or remove certain officers or a majority of directors of the reporting company, (3) is an important decision-maker; or (4) has any other form of substantial control over the reporting company.

Reporting of Company Applicants

A reporting company is required to report their company applicants if it is a domestic reporting company created on or after January 1, 2024, or a foreign reporting company first registered to do business in the U.S. on or after January 1, 2024. There are two categories of company applicants: (1) the “direct filer” and (2) the individual who “directs or controls the filing action”. The direct filer must be identified by all reporting companies that have a company applicant reporting requirement. (The direct filer is often an attorney filing articles of incorporation or certificates of formation on behalf of a client.) The second category may not be applicable and will only be required when more than one individual is involved in the filing of the document creating the entity (such as a principal of the entity who requested the filing be made).  No reporting company will have more than two company applicants.

• Full legal name of the reporting company
• Any trade name or “doing business as” name
• Full address of the principal office
• Jurisdiction of formation
• IRS Taxpayer Identification Number (TIN)/Employer Identification Number (EIN)
• Full legal name of Beneficial Owner(s)
• Full address of each Beneficial Owner
• Date of Birth of each Beneficial Owner
• Unique identification number and issuing jurisdiction and image of one of the following documents:
  • US Passport
  • State Driver’s License
  • Identification document issued by a state, local government, or Tribe

How to file a BOI Report

The BOI Report must be filed electronically through the FinCEN’s secure filing system. You may access the filing system at: www.fincen.gov/boi. In the event there is any change to the required information concerning the reporting company or its Beneficial Owners in a BOI Report filed for a company, the company must file an updated BOI Report within thirty (30) days after the date on which the change occurred. An updated BOI Report is required for (1) any change in the reporting company’s information, such as change of address or new DBA, (2) a change in Beneficial Owners such as a new CEO, a sale that changes who meets the 25% ownership threshold, or the death of a Beneficial Owner, or (3) any change to a Beneficial Owner’s name, address, or identifying number.