On Sept. 29, 2022, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the Corporate Transparency Act’s (CTA) Beneficial Ownership Information (BOI) report provisions.
Effective Jan. 1, 2024, the CTA requires corporations, limited liability companies (LLCs), and other entities organized or registered to do business in the United States to file a BOI report to FinCEN. The CTA describes who must file a report, what information must be provided, and when a report is due. The CTA, a provision of the Anti-Money Laundering Act, authorizes FinCEN to collect this information, and share it with authorized government authorities and financial institutions.
Entities required to file
Reporting companies that are required to file a BOI report include:
A domestic reporting company: Corporation, LLC, or other entity created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe.
A foreign reporting company: Corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or similar office.
Entities exempt from filing
There are 23 types of entities exempt from the BOI reporting requirement. Many of these exempt entities are already regulated by federal or state government, and disclose their BOI to a governmental authority. The entities include banks, insurance companies, SEC-registered companies, utilities, and 501(c) tax-exempt organizations. Inactive entities are also exempt.
The most notable exempt entity is a large operating company with more than 20 full-time employees, more than $5 million in gross receipts or sales, and an operating presence at a physical office within the United States.
Reporting requirements
A reporting company created or registered on or after Jan. 1, 2024 will need to report Information about itself, beneficial owners, and company applicants.
A reporting company created or registered before Jan. 1, 2024 will need to report information about itself and beneficial owners. The reporting company does not need to provide information on company applicants.
Beneficial owners
A beneficial owner is 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 ownership interests of the reporting company.
Whether an individual has substantial control over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over important decisions the reporting company makes. In addition, any senior officer is deemed to have substantial control over a reporting company.
In general, ownership interests refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock, as well as more complex instruments.
There are five exceptions to the definition of beneficial owner:
A minor child, provided that a parent or guardian’s information is reported.
An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual.
An individual acting solely as an employee of a reporting company in specified circumstances.
An individual whose only interest in a reporting company is a future interest through a right of inheritance.
A creditor of a reporting company.
Company applicants
There can be up to two individuals who qualify:
The individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
Only reporting companies formed or registered on or after Jan. 1, 2024 will have to report their company applicants.
Information to report
A reporting company will have to report its:
Full legal business name.
Any trade names, doing business as (d/b/a), or trading as (t/a) names.
Complete current street address of principal place of business if that address is in the United States. For reporting companies whose principal place of business is outside the U.S. border, the current address from which the company conducts business in the United States.
Jurisdiction of formation or initial registration (state, tribal, or foreign jurisdiction).
Taxpayer Identification Number (TIN). Foreign reporting companies without a TIN will be required to provide a foreign tax identification number.
For each individual who is a beneficial owner or a company applicant, a reporting company will have to report the individual’s:
Full legal name, date of birth, and complete current address. A business address is required for a company applicant who forms or registers an entity during such company applicant’s business.
Unique identifying number from an acceptable non-expired identification document (U.S. passport; state, local, or tribal identification document; state-issued driver’s license; foreign passport).
State or jurisdiction that issued the identification document.
Image of the identification document that also includes a photograph of the individual.
When to file
The due date of the initial BOI report depends on when the reporting company was created.
If the reporting company was created or registered before Jan. 1, 2024, the initial BOI report is due no later than Jan. 1, 2025.
If the company is created or registered on or after Jan. 1, 2024, the initial BOI report is due within 30 calendar days of the date the company is created. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
Once the initial report has been filed, existing and new reporting companies will have to file updated reports within 30 calendar days after a change occurs. Changes include updates to previously reported informed about the reporting company itself, or its beneficial owners and beneficial ownership information.
Corrected reports are required when previously reported information was inaccurate when filed. Corrected reports are due within 30 calendar days after the reporting company becomes aware or has reason to known of an inaccuracy.
Reporting violations
The CTA makes it unlawful for any person to willfully provide false or fraudulent beneficial ownership information to FinCEN, or to willfully fail to report complete or updated beneficial ownership information. The CTA states that a person violating the BOI reporting obligation shall be liable for a civil penalty of up to $500 for each day a violation continues or has not been remedied, up to $10,000, and imprisoned for up to two years.
Impact on Business Owners
Business owners will need to determine whether their business entity is a reporting company as defined under the CTA—and as a result subject to the BOI reporting requirement. Businesses that do not fall under one of the 23 types of exempt entities will
have to file a BOI report.
The most pertinent type of exempt entity is the large operating company that have more than 20 full-time employees, more than $5 million in gross receipts or sales, and an operating presence at a physical office within the United States. As a result, most small businesses do not meet this definition and will have to file a BOI report. In addition to the many expected small businesses impacted by the CTA, the individuals being reported as beneficial owners and company applicants are also impacted.
For businesses created on or after Jan. 1, 2024, the reporting requirement becomes effective on Jan. 1, 2024. In addition, if the business is created or registered on or after Jan. 1, 2024, the initial BOI report is due within 30 calendar days of the date the company is created. FinCEN will accept reports electronically beginning January 1, 2024.
For businesses created before Jan. 1, 2024, the reporting requirement becomes effective on Jan. 1, 2025.
Small business owners, In preparation for the filing of the BOI report, additional factors to consider going forward include changes to ownership interests and previously reported information, as updated reports and corrected reports are due within 30 calendar days.
Business owners should consult their Tax Professional for more information.
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