Starting on January 1, 2024, certain domestic and foreign entities are required to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN).
The reporting will contain information about the entity itself and two categories of individuals (1) the beneficial owners of the entity and (2) company applicants (the individuals who filed an application with a governmental authority to create the entity or register it to do business).
These requirements were enacted as part of the Corporate Transparency Act (CTA) and are expected to affect the majority of small, closely held LLCs and corporations.
Below is some preliminary information to consider as you approach the implementation period for this new reporting requirement. Please note that this information is meant to be general only and may not apply to your specific facts and circumstances.
What entities are required to comply with the BOI reporting requirement?
Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Domestic entities that are not registered with a secretary of state or similar office are not required to report under the CTA.
Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
There are 23 specific categories of entities that are exempted from the BOI reporting requirements, including publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Many of these entities are heavily regulated and thus already disclose their BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S.;
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
- Be physically present in the U.S.
When and where must companies file?
- Reports will be accepted starting on January 1, 2024 and have to be filed electronically through a secure filing system available through the FinCEN website
- New entities (created/registered after 12/31/23) — must file within 90 days
- Existing entities (created/registered before 1/1/24) — must file by 1/1/25
- Reports that have changes to previously reported company information, or discover inaccuracies in previously filed reports — must file within 30 days
What information is required to be reported?
A reporting company’s initial report has to include:
- the reporting company’s full legal name, including any trade names or “doing business as” (DBA) names,
- the current street address of the entity’s principal place of business in the U.S.,
- the jurisdiction of formation or registration,
- its taxpayer identification number,
- the legal name, date of birth, and current address of all beneficial owners and/or company applicants of the entity, along with a unique identifying number from an acceptable identification document (e.g., a passport or driver’s license), and
- an image of the document from which the unique identifying number in item #5 is taken.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
Risk of non-compliance
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time.
FinCEN has published different tools and resources to assist small businesses with the new rules. It is important that all business owners review this information to ensure compliance as there are substantial penalties, potentially criminal and civil, for willful failure to file or provide false information. Below are links to some of these resources.