Does your small business operate or plan to operate in the United States as a corporation?  A limited liability company (“LLC”)?  Or some other entity created by filing a document with the Secretary of State?   As of January 1, 2024, you probably have a new federal reporting requirement – FinCEN BOI Reporting! Complying will be a new headache for small businesses and failure to comply can lead to significant civil or criminal penalties. So make sure to talk to your attorney or other qualified representative about how to comply!

Beneficial Ownership Information Under Corporate Transparency Act

The requirement for FinCEN BOI Reporting  was created by the Corporate Transparency Act (“CTA”)  that was enacted in 2021 to aid law enforcement in their fight against terrorism, money laundering, and other crimes by creating a database of the beneficial owners for most small business entities operating in the United States.  Under the CTA, all “reporting companies” have to file a Beneficial Ownership Information (“BOI”) report with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury (“Treasury”) identifying the beneficial owners of the company.

The information contained in a BOI Report is confidential under the CTA and will be stored in a secure, non-public database using security methods and  controls typically used in the Federal government to store non-classified sensitive information.  But, FinCEN is authorized under the CTA and implementing regulations to disclose BOI information in limited circumstances to the followings groups:

1. U.S. Federal agencies engaged in national security, intelligence, or law enforcement activity
2. U.S. State, local, and Tribal law enforcement agencies
3. Foreign law enforcement agencies, judges, prosecutors, and central authorities
4. Financial institutions using BOI to facilitate compliance with customer due diligence (“CDD”) requirements under applicable law
5. Government regulators supervising financial institutions for compliance with CDD requirements; and
6. Treasury officers and employees.

Who Has to File a BOI Report?

All non-exempt  “reporting companies”  must file a BOI Report with FinCEN. A “reporting company” is any company formed in the U.S., or any foreign company that registered to do business in the U.S., by filing a document with a secretary of state, any similar office, unless covered by an exemption.

There are 23 categories of exemptions and any company that qualifies under any  exemption does not need to file a BOI report.  The exemptions include exemptions for Securities Reporting  Issuers; Banks, Large Operating Companies, Inactive Companies, and several others.  Details and the criteria for qualifying for any exemption is provided by FInCEN in Section 1.2 of its Small Entity Compliance Guide.  Although apparently broad, most small businesses are not likely to qualify for an exemption and will need to file a BOI report with FinCEN. So make sure to consult with an attorney or other qualified professional if you think that your business qualifies for a BOI Report exemption!

What Do Reporting Companies Need to Do?

A non-exempt  reporting company must submit a BOI Report to FinCEN with the following information:

1. Company Information:  Full legal name (and any trade names); address, jurisdiction of formation, and taxpayer identification number (or equivalent issued by a foreign jurisdiction).
2. Beneficial Owner Information:  Full legal name, date of birth, address, and the unique identifying number and image of a US passport, state driver’s license, or other eligible identification document for each individual identified as a beneficial owner.
3. Company Applicant Information: For companies created or registered on or after January 1, 2024, the company must provide the same information about the company applicant required to be provided for beneficial owners.

Companies must collect the required information and submit BOI reports through FinCEN’s Beneficial Ownership Information E-Filing System.

If any Company or Beneficial Owner information filed in a BOI Report changes or the company discovers the information on a BOI Report is inaccurate, the Company  must file an updated BOI Report with FinCEN to communicate these changes no later than 30 days after the date on which the change occurred.

A reporting company, however, is not responsible for any changes to the Company applicant information  (e.g., a change in the address of a Company applicant) and does not need to file an updated BOI Report to reflect any changes in this information.  BUT,  a reporting company does need to file an updated BOI report if there are inaccuracies in previously reported company applicant information.  So make sure that all information about your Company Applicant is accurate when you file your initial BOI Report with FinCEN!

Reporting companies are not otherwise required to submit BOI Reports on an annual or other periodic basis as a matter of course.

Who Are the Beneficial Owners of a Company?

There are two categories of beneficial owners in a reporting company

1. Substantial Control:  Individuals who exercises substantial control over a reporting company; or
2. 25% Ownership Interest:  Individuals who own or control at least 25% of the ownership interests(such as equity, stock, membership interests/units, voting rights, etc.)  in a reporting company.

Substantial Control

An individual exercises substantial control over a reporting company if the individual serves in any of the following capacities in a company:

• Serves as a senior officer (like President, Chief Financial Officer, etc.)
• Has authority over the appointment or removal of senior officers or a majority of the board of directors or similar body
• Directs, determines, or has substantial influence over important decisions made by the reporting company, such as selling the business, issuing new equity or shares, compensation to any senior officers,  amendment of any substantial governance document (like articles of organization or by laws), and other important decisions; or
• Has any other form of substantial control over the reporting company.

If an individual falls into any of categories, the individual must be identified as a beneficial owner of the reporting company in the BOI Report, unless an exemption applies.

Ownership Interest

Ownership interests for purposes of the CTA can include equity, stock or voting rights; a capital or profit interest; convertible instruments; options or other non binding privileges to buy or sell any of the aforementioned types of interests; or any other instrument, contract or other mechanism used to establish ownership. To determine whether an individual owns or controls, directly or indirectly, at least 25% of the ownership interests of the company, a reporting company may need to first identify the types of ownership interests, then calculate whether any single individual’s interests exceed 25%.  If an individual meets this threshold, the individual must be identified as a beneficial owner in the company’s BOI Report, unless an exemption applies.

Beneficial Owner Exemptions

There are several exemptions that might apply to exclude an individual from being reported on a company’s BOI Report. There are exemptions for (1) a minor child, if the information for the parent or guardian is provided; (2) a nominee, intermediary, custodian or agent for another individual, (3) an employee acting as an employee; (4) an individual whose only interest in a reporting company is a future interest through right of inheritance and (5) a creditor of the reporting company.

Qualifying under any of these exemptions can be complex, and FinCEN’s Small Entity Compliance Guide provides additional information, including checklists, for identifying individuals who are beneficial owners.  But companies with more complex ownership and/or governance structures should conduct a more detailed and nuanced analysis to identify beneficial owners.  Be sure to consult with an attorney or another qualified individual if you have any questions about determining the beneficial owners in your company.

What is a Reporting Company Applicant?

Reporting companies created after January 1, 2024, are required to identify and report company applicants. Each reporting company will have at least one and a maximum of two company applicants. Under the regulations implementing the CTA, a “Company Applicant” for a reporting company is defined as: (1) the individual who directly files the document that creates a domestic reporting company or first registers a foreign reporting company to do business in the US; and, if applicable, (2) the individual primarily responsible for directing or controlling the filing of the creation or registration document.

Reporting companies created or registered on or before December 31, 2023, do not have to report company applicants when they start reporting by January 1, 2025.

What is a FinCEN ID and Why Does it Matter?

A “FinCEN ID” is a unique identifying number that FinCEN will issue to an individual upon request. An individual may directly apply for a FinCEN ID by providing the same information that a reporting company would submit on behalf of the individual as a company applicant or beneficial owner. (In certain instances, a reporting company may wish to obtain a FinCEN ID and can request the issuance when filing its BOI report.).

A reporting company may report an individual’s FinCEN ID in place of the required four pieces of personal information about the individual in BOI Reports.  An individual who is either a beneficial owner or a company applicant of a reporting company will therefore not need to provide personal information directly to the reporting company if the individual has obtained a FinCEN identifier and provides it to the reporting company instead.  For companies with multiple beneficial owners, this is likely preferable  as the reporting company will not be responsible for updating FinCEN with any changes to the address or supporting documentation of any beneficial owners.  Any individual who applies for and obtains a FinCEN ID is solely responsible for keeping the information provided to FinCEN to obtain a FinCEN ID (e.g., address information and supporting documentation) up-to-date.

What is the Deadline for Filing the Initial BOI Report?

The deadline for filing the initial BOI report with FinCEN depends on whether your company was formed before or after January 1, 2024.  If your company was formed before January 1, 2024, you currently have until January 1, 2025 to file your initial BOI Report with FinCEN.

If your company was formed after January 1, 2024, but before January 1 2025, you have 90 calendar days from the date you received actual or public notice that your company was created to file your initial BOI Report..  This notice usually comes from  the Secretary of state’s office.    If your company is formed after January 1, 2025, then you have 30 calendar days after receiving actual or public notice of the creation of your company to file the initial BOI Report.

What are the Penalties for Non-Compliance?

There are significant penalties for violating and failing to follow the BOI reporting requirement of the CTA.  Under the CTA, it is unlawful for any person to:

• willfully provide, or attempt to provide, false or fraudulent BOI  to FinCEN
• willfully fail to report complete or updated BOI to FinCEN.

Penalties can include  civil penalties of not more than $500.00 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000.  Both individuals and corporate entities can be held liable for willful violations and this includes anyone who actually files the false information with FinCEN or anyone who provides false information to the filer.

What are the Next Steps?

Companies in existence prior to January 1, 2024 have time to determine if they need to file a BOI Report with FinCEN, because they do not need to file the initial BOI Report until January 1, 2025.  Nevertheless, these companies may wish to start developing processes  and speaking with their attorney or other qualified individual to determine whether they are required to file a BOI Report, and what steps need to be taken to comply  Newly formed companies will need to determine whether they are a reporting company under the CTA and, if so, how they will address reporting requirements.  If you or your company need assistance, please free free to contact Bross Law, LLC.