Summary of key points about Beneficial Ownership Information Reports

• The Corporate Transparency Act (CTA) mandates that smaller, lesser-regulated companies disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) on Beneficial Ownership Information Reports beginning in 2024.
• Businesses that do not qualify for exemption from the act are considered “reporting companies” and required to share details about every individual who exercises substantial control or holds 25%+ ownership over the company.
• Domestic reporting companies will be required to file updated reports within 30 days whenever information changes about either the reporting company or any beneficial owner.
• Approximately 32 million entities, predominantly US small businesses, are expected to file BOI reports, along with an additional 5 million reporting companies created each year.
• Failure to comply with reporting requirements can result in daily civil penalties of $500 for ongoing violations, fines up to $10,000, up to two years imprisonment, or a combination of these penalties.
• An estimated 40% of businesses are expected to seek professional assistance for compliance with these new regulations. Resources are available to find attorneys specializing in CTA compliance on FincenList.com.

If you’re a small business owner, this one’s for you. The first day of 2021 saw the implementation of the Corporate Transparency Act (CTA) by the United States Congress, an integral piece of the larger Anti-Money Laundering Act of 2020. This legislative initiative, in essence, seeks to bolster national security and streamline intelligence and law enforcement operations against an array of illicit activities such as money laundering and terrorism financing.

The CTA mandates new filing requirements from smaller, lesser-regulated companies across the United States, requiring them to disclose beneficial ownership information (BOI) as reporting companies to the Financial Crimes Enforcement Network (FinCEN), a subdivision of the U.S. Department of the Treasury. Business owners will need to share details about individuals who have a significant say (exercises substantial control) in company matters. This includes both those who own or govern the business.

The sheer scale of this regulation is immense. It’s projected that no less than 32 million entities – predominantly U.S. small businesses and foreign reporting companies registered in the U.S. – will need to comply with the BOI reporting requirement on its effective date, in addition to 5 million new reporting companies sprouting up each year. The stakes are high; neglecting to provide the required data or resorting to misleading or falsified information can result in daily civil penalties of $500 for continuous violations, fines soaring up to $10,000, a two-year imprisonment term, or an unsettling combination of the three.

The importance of familiarizing oneself with these reporting prerequisites cannot be overstated. It’s estimated that 40% of businesses will likely seek professional assistance, just as one would engage an accountant for tax-related matters. A comprehensive list of attorneys specializing in CTA compliance can be found on FincenList.com, but please read on if you would like to learn more about the filing requirements before considering hiring an attorney.

FinCEN has the legal power to disclose BOI information about a reporting company only to government agencies and financial institutions under certain conditions. FinCEN states that these BOI reports will be instrumental in assisting U.S. government departments, agencies, law enforcement, tax authorities, and financial institutions in safeguarding the nation’s financial system from illicit undertakings that undermine national security and foreign policy interests. Consistent with the CTA’s mission, the BOI reporting prerequisite effectively outlaws anonymous shell companies.

Does my Company need to Submit Beneficial Ownership Reports?

Nearly every smaller U.S. business will need to file these reports. The Beneficial Ownership Information Reporting Rule, or Reporting Rule, encompasses a wide array of businesses. If your Company is structured as a corporation, limited liability company (LLC), or an entity established through filings with a Secretary of State, or an equivalent office under the jurisdiction of a state or an Indian tribe, your business falls under the purview of the Reporting Rule and your Company is considered a reporting company. Moreover, foreign reporting companies, such as corporations, LLCs, or other entities formed under laws in a foreign country and registered to conduct business within any state or tribal jurisdiction, must also file BOI reports. 

Consequently, the ensuing classifications of entities are mandated to file reports, unless they meet certain exemptions and are thereby dubbed “Reporting Companies”:

1. Domestic Corporations (U.S.).
2. Domestic Limited Liability Companies (U.S. LLCs).
3. Other comparable entities within the U.S., encompassing limited partnerships and business trusts or statutory trusts.
4. Foreign corporations, LLCs, and other analogous entities registered to transact business within the United States.

Some exemptions do exist which will exclude a company from FinCEN’s reporting company status and waive the requirements to file BOI reports as reporting companies. Current exemptions mostly apply to larger companies or companies operating in highly regulated types of business.

Exemptions to Beneficial Ownership Report filing

The Corporate Transparency Act Reporting Rule does specify 23 categories of entities exempted from being labeled as Reporting Companies, thereby exempting these companies from the mandate of filing reports.

The most common exemption – Of the 23 outlined exemptions for filing Beneficial Ownership Information (BOI) reports, most seldom apply to small businesses. The exemption most frequently applicable is for “large operating companies,” which must fulfill three distinct criteria to qualify. Large operating companies must meet ALL THREE of the following criteria to be exempt from reporting:

1. Large operating companies must produce over $5,000,000 in gross sales.
2. Large operating companies must employ 21 or more full-time employees. Part-time employees do not count 
3. Large operating companies must maintain an active presence at a physical office within the U.S.

Other exemptions – The remaining 22 exemptions predominantly apply to potential reporting companies operating in industries under stringent regulation, wherein agencies have ready access to their beneficial ownership data. These exemptions waive BOI filing requirements for companies in the following lines of business:

1. Domestic U.S. banks.
2. Domestic credit unions.
3. Bank holding companies and savings and loan holding companies.
4. Issuers or Securities.
5. U.S. governmental entities.
6. Registered money-transmitters.
7. Licensed registered broker-dealers.
8. Securities exchanges and clearing agents.
9. Exchange Act registered companies.
10. Registered investment companies and advisers.
11. Registered venture capital fund advisers.
12. State-regulated insurance companies.
13. State-licensed insurance producers.
14. Commodity Exchange Act registered entities.
15. Public accounting firms.
16. Public utility entities.
17. Financial market utility enterprises.
18. Pooled investment vehicles.
19. Tax-exempt entities.
20. Entities assisting tax-exempt entities.
21. Wholly-owned subsidiaries of exempt entities.
22. Inactive entities.

A helpful tool is available on FincenList.com that allows business owners to check if their company needs to file a report. We recommend this tool because it checks companies for filing requirements in less than a minute and does not require signing up or providing an email.

How to complete a beneficial ownership information report

As the owner of a reporting company, you must provide both details about the reporting company itself and details about each beneficial owner who exercises substantial control or hold 25% or more of the company’s ownership interests.

What needs to be provided by each reporting company? – Entity details that every reporting company must provide are as follows:

• Official entity name (inclusive of any alternate trade or ‘doing business as’ names).
• Principal address of business operations.
• Jurisdiction of formation and, for foreign entities, the State or Tribal jurisdiction of registration.
• A tax identification number. This must be a Federal EIN issued by the IRS for U.S. entities.

Reporting companies are required to identify their beneficial owners, and for companies established post-2024, the “company applicants” tasked with filing or directing the filing of the entity’s formation documents.

What is a Beneficial Owner? – A beneficial owner, as per the Reporting Rule’s definition, is an individual who directly or indirectly wields substantial influence over a reporting company OR owns or controls at least 25% of the company’s ownership interests in a reporting company. This means that any individual that holds equity, and officers or managers that do not hold equity, are all beneficial owners and should both be on the BOI report. A beneficial owner is always an individual, and if a beneficial owner holds their ownership interests or substantial control through an entity (such as through limited liability companies), they must still be included on the report listing their beneficial ownership information as an individual. The Corporate Transparency Act seeks to list a database of people to contact from domestic reporting companies if needed by FinCEN, so any entity listed as an owner is “looked through” to the individuals instead.

Ownership interests defined – Within the Reporting Rule, ownership interest pertains to any instrument, contract, arrangement, understanding, or mechanism that establishes ownership. This encompasses equity, stock, capital, or profit interests. An individual is a beneficial owner if they directly or indirectly own or control an ownership interest in a Reporting Company through joint ownership, certain trust arrangements, or by acting as an intermediary, custodian, or agent on behalf of another.

Convertible instruments, warrants, and other rights to purchase, sell, or subscribe to an ownership interest are incorporated, whether classified as debt or equity. Puts, calls, and other options to buy or sell ownership interests are also covered, except when created and held by a third party without the Reporting Company’s knowledge or involvement.

Substantial control defined – Unlike traditional definitions of beneficial ownership, FinCEN’s BOI reporting rule requires including any individual who exercises substantial control over a reporting company in the report as a beneficial owner. An individual is considered to possess substantial control over a reporting company if they meet any of a variety of criteria including:

• Holding a senior officer role within the reporting company. This encompasses positions such as president, CEO, CFO, COO, general counsel, or any other officer with comparable authority in the reporting company.
• Possessing the authority to appoint or remove any senior officer or a majority of the board of directors (or analogous body) of the reporting company.
• Directing or considerably influencing significant aspects of the reporting company (like reorganization, dissolution or merger, selection or termination of business lines or ventures, or amendment of governance documents).
• Having any other type of substantial control over the reporting company. This last point is a catch-all provision intended to cover unconventional control methods or unique governance structures in a reporting company. This provision strives to include anyone capable of making critical decisions on behalf of the reporting company and makes it illegal to not include these individuals.

What needs to be provided by every beneficial owner? –Every beneficial owner, whether they hold ownership or substantial control, must provide the following:

• The complete legal name of each beneficial owner.
• The date of birth of of each beneficial owner.
• The current residential address of each beneficial owner (or business street address for company applicants).
• A unique identifier from a government-issued identification document (like a State-issued ID or passport), accompanied by an image of the document from each beneficial owner.

It’s essential to understand that the term “beneficial owner” also has specific exclusions under the reporting rules. For example, minor children are not considered beneficial owners, provided that a parent or legal guardian’s information is duly reported. Likewise, individuals who are acting in roles such as nominees, intermediaries, custodians, or agents are also not deemed beneficial owners. Similarly, employees who do not have senior officer roles and only function in the capacity of their job are excluded from this definition. Furthermore, individuals who only hold a future interest in a reporting company through inheritance rights do not fall under the category of beneficial owners. Lastly, creditors of a reporting company are also not counted as beneficial owners, unless they meet the beneficial owner definition by exercising substantial control or owning or controlling at least 25% or more of the entity’s ownership interests.

Remember, it is the reporting company’s responsibility to gather this information and file their BOI reports, making it important to collect all of this information before the deadline. Company owners are subject to liability personally if they fail to gather and submit correct and complete beneficial ownership information.

What is the deadline for filing BOI reports in 2024?

For existing Reporting Companies established prior to January 1, 2024, owners have until January 1, 2025, to submit the necessary information about their Company and beneficial owners. Approximately 32 million existing domestic reporting companies will be required to submit reports.

Reporting companies created or registered on or after January 1, 2024, are mandated to submit the required information within 30 days of receiving notice of effective formation or registration. These reporting companies must report information pertaining to both company applicants and beneficial owners.

Updated Beneficial Ownership Information reporting requirements

As a company owner, you need to be aware that BOI reports are not a one-time requirement. Should there be an alteration in the information previously reported about a reporting company or its beneficial owners, it needs to be reported to FinCEN within 30 days of the change to avoid penalties. There is no limit to the number of reports a company needs to file in a year, for example, if substantial changes happen five times in a year, an updated report needs to be filed with FinCEN for each one of these updates.

Common scenarios related to changes to either the reporting company’s information or a any beneficial owner’s information create an obligation to update your report such as:

• An officer of the company selling their home and moving, thus updating their residential address.
• The office address for the business changing.
• The company using a new DBA name.
• Hiring or firing an officer of the company.
• Taking on a new owner or decision maker.

Discrepancies must be reported within 30 days of uncovering them. Be aware that any change in an entity’s ownership may necessitate filing a BOI report or updating an existing one, even if the entity wasn’t previously classified as a reporting company.

It’s helpful to have a law firm on board to monitor your corporate transparency act compliance. Unfortunately, the full text of the CTA filing rules is in excess of 60 pages in the PDFs on FinCEN’s website. If you would prefer to focus on your business and hire a professional to complete your BOI filing, you can find a list of specialized firms on FincenList to save you time and transfer liability away from your company.

Who can access beneficial ownership information?

Filed BOI reports will not be publicly accessible. FinCEN is only authorized to disclose beneficial ownership information to specific organizations and under distinct conditions, mostly related to banking due diligence or criminal investigations. These include U.S. government agencies, some foreign agencies, and authorized individuals, as well as financial institutions that require the information for specific Know Your Customer (KYC) purposes. Reported information will not be publicly accessible and will not be subject to Freedom of Information Act requests.

Delving deeper into the specifics, the Proposed Access Rule permits three categories of U.S. government agencies direct access to BOI from FinCEN’s database. This includes federal agencies with roles in national security, intelligence, and law enforcement activities. Additionally, Department of the Treasury officials and employees performing their official duties, including tax administration, are granted access. Finally, state, local, and tribal law enforcement agencies involved in criminal or civil investigations can also access this information. Federal agencies are required to provide a justification for their requests, while state, local, and tribal agencies need to present a court document that authorizes access to the BOI from FinCEN’s database.

Foreign law enforcement agencies and other authorized foreign requestors do not have direct access to FinCEN’s BOI database. Instead, they must submit their request to a federal agency acting as an intermediary. The federal agency may provide BOI only in response to a request for assistance in an investigation or prosecution by the foreign country, given that there is an applicable treaty or similar international agreement. It is crucial that the foreign requestor uses the BOI in line with the treaty or agreement under which the request was made.

What are company applicants?

Companies created after January 1st, 2024, will have to also provide information about their company applicants under the Corporate transparency act. Company applicants are any individuals who assist with the formation or registration of reporting companies, but do not go on to have ownership interests or substantial control. Typically, these are law firms specialized in offering incorporation services or a similar service provider. Most law firms will provide a FinCEN ID instead of personal information about their attorneys. FinCEN IDs are obtained from FinCEN by submitting information directly to the department in exchange for a FinCEN number that can be used on BOI reports in lieu of personal information.

BOI reports are complex: What does is cost to have a law or accounting firm complete my FinCEN filing?

It’s important to recognize that many rules and nuances govern FinCEN’s new BOI reports. Confusing rules combined with harsh penalties make it practical for businesses to hire professional firms to complete their filing. Initial estimates of pricing from firms who have researched this regulation indicate that a simple BOI report will cost between $300 to $600 and complex reports with a dozen or more owners will likely cost $1,500+. Fortunately, most small businesses will fall into the more simple end of the reporting company spectrum, and will benefit from finding an affordable law firm to file their reports.