Starting January 1, 2024, many companies will be required to report beneficial ownership information (“BOI”) to the U.S. government. Enacted into law on January 1, 2021 (see MLLP’s prior client alert here) and implemented primarily through a rule published by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) on September 30, 2022, the Corporate Transparency Act (“CTA”) created the BOI reporting requirement as part of the government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.
1. Overview.
- Reporting Companies. All reporting companies (defined below), including domestic and foreign companies, must file a report with FinCEN. Existing reporting companies will be required to report BOI by January 1, 2025. A reporting company created or registered in 2024 will have 90 days after it is formed to report BOI.
- Exceptions. There are 23 categories of entities that are exempt from the filing requirement, including already highly regulated businesses, large operating companies, pooled investment vehicles and inactive entities.
- Reporting Requirements. The BOI report must include for each beneficial owner and company applicant (each defined below): (i) full legal name; (ii) date of birth; (iii) current address; and (iv) unique identifying number from an acceptable identification document (e.g., passport, driver’s license, etc).
- Confidentiality. BOI reports are confidential, nonpublic documents and may only be disclosed by FinCEN under specific circumstances.
- Penalties. There are civil penalties and criminal penalties for providing false or fraudulent information in connection with a BOI report or failing to comply with CTA reporting requirements.
- Learn More. FinCEN has prepared a comprehensive set of FAQs relating to BOI reporting rules, available here.
2. Reporting Companies/Exemptions.
- Reporting Company. Under the CTA, a “reporting company” must file a BOI report with FinCEN. Reporting companies include most business entities that do not fall into one of the exemption categories. Entities that may be reporting companies include:
- a corporation, LLC or other similar entity that is created by the filing of an organizational document with any U.S. state, territory, or Tribal government; or
- an entity formed under the laws of a foreign country and registered to do business in any U.S. state, territory, or Tribal jurisdiction.
- Exemptions. 23 types of entities are exempt from the CTA’s BOI reporting requirements. Most significantly, a “reporting company” does not include a “large operating company” which is any entity that:
- directly employs more than 20 fulltime employees in the U.S.;
- has an operating presence at a physical office within the U.S.; and
- reported more than $5 million of revenue from U.S. sources on a consolidated basis to the IRS for the previous year.
- Other types of entities that are exempt from BOI reporting include:
- Public companies, insurance companies, banks, registered investment companies, registered investment advisers, and certain other entities already subject to regulatory oversight;
- Nonprofit entities, political organizations, and certain tax-exempt trusts; and
- Wholly owned subsidiaries of any of the foregoing exempt entities.
3. Filing Deadlines.
A reporting company created or registered to do business before January 1, 2024 will have until January 1, 2025 to file its initial BOI report. Reporting companies created or registered in 2024 will have 90 days after they are formed to report BOI. Reporting companies created or registered on or after January 1, 2025 will have 30 calendar days to file their initial BOI reports. FinCEN began accepting BOI reports on January 1, 2024. Updated BOI reports must be filed by reporting companies within 30 days after a change in the company’s basic information, beneficial owners, or status as a reporting company.
4. Reporting Requirements.
- Basic Information. Beneficial owner and company applicant information, including: (i) full legal name; (ii) DOB; (iii) current address; and (iv) passport or unique identifying number. “Company Applicant” is the individual who directly files an entity’s formation documents or is primarily responsible for directing or controlling the filing. A “beneficial owner” is described below.
- Reporting Company Information. Information on the reporting company, including: (i) full legal and trade names; (ii) current address; (iii) states in which it is registered to do business; and (iv) FEIN, as applicable.
- Beneficial Owners. A “beneficial owner” is any person who, directly or indirectly:
- Owns or controls 25% or more of the reporting company; or
- Exercises “substantial control”, which
- May be exercised directly or indirectly
- Includes senior officers or anyone who has authority to appoint or remove officers or directors
- Includes trustees or beneficiaries of a trust
- Determination of beneficial ownership can be complex depending on the structure of the reporting company, including for example consideration of indirect ownership interests and management/governance provisions in partnership, operating, and shareholders agreements that may give even modest equity holders rights that meet the standard for substantial control.
- Electronic Filing. All BOI reports will be delivered electronically to FinCEN through its e-filing system, available here.
5. Confidentiality of Reported Information.
BOI reports are not public. BOI will be available upon request to: (i) federal law enforcement agencies for national security intelligence purposes or other purposes consistent with the CTA; (ii) a state, local, or Tribal law enforcement agency, if authorized by a court order; (iii) federal agencies on behalf of a foreign country, pursuant to an international agreement; or (iv) financial institutions, with the consent of the reporting company, pursuant to customer due diligence requirements (i.e., “know your customer” requirements).
6. Penalties.
Any person (and not just the reporting company) who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues up to a maximum of $10,000, and may also be subject to criminal penalties of up to two years imprisonment. Potential violations include willfully failing to file a BOI report, willfully filing false BOI, or willfully failing to correct or update previously reported BOI. There is a safe harbor if mistakes or omissions are voluntarily corrected within 90 days of the deadline for the original report. Unauthorized disclosure of BOI carries penalties of $500 per day, up to a maximum of $250,000, and imprisonment for up to 5 years.
Companies should review the CTA and its enabling rules carefully to determine whether reporting requirements apply. FinCEN has issued guidance in the form of Frequently Asked Questions, available here. We will continue to monitor developments in this space and would be happy to discuss any questions.
