By now, many of us have already heard about the Beneficial Ownership Information (“BOI”) reporting requirements that are going live on January 1, 2024, and will become a concern for a vast majority of business owners, business entities, and people having substantial control over those entities. The Financial Crimes Enforcement Network (aka FinCEN) continues to develop the framework for the administration of the BOI reporting and safeguarding of the confidential information that must be disclosed by the entities and individuals required to comply with the BOI reporting rule starting January 1, 2024. According to the U.S. Chamber of Commerce, there are 33.2 million small businesses in the United States, and depending on whether they qualify as “reporting companies” based on the regulations published by FinCEN, they will have to comply with the BOI reporting requirements.
Sounds scary? I think it does. In September 2023, FinCEN published a Small Entity Compliance Guide (“Guide”) to provide business owners and other interested parties with information about the BOI reporting, companies and individuals subject to the BOI reporting, time for filing and penalties for failure to timely file the initial BOI report or an update to previously filed BOI report. The full version of the 50 page Guide is available at https://www.fincen.gov/boi/small-entity-compliance-guide in several languages including, English, Spanish, Chinese, Russian and French. You are more than welcome to read the Guide at your pleasure and convenience, but I would like to slightly simplify your life and go over some of the most important aspects of the upcoming reporting requirements.
Let’s start with a bit of the background information to help you understand why FinCEN created the BOI reporting requirements.
On January 1, 2021, Congress enacted the Corporate Transparency Act (“CTA”) to assist the U.S. Government’s efforts to combat money laundering, financing of terrorists’ organizations, tax fraud and other illicit financial activities. On September 29, 2022, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule establishing Beneficial Ownership Information (“BOI”) reporting requirement pursuant to the CTA. The BOI reporting requirement goes into effect on January 1, 2024, and certain entities and individuals will be obligated to disclose business-related and personal information to FinCEN.
REPORTING COMPANIES. FinCEN identifies two types of companies that are required to comply with the reporting requirements:
- Domestic reporting companies – entities created by the filing of a documents with a secretary of state or any similar office in the U.S. This includes the most used types of entities such as limited liability companies (“LLCs”) and corporations.
- Foreign reporting companies – entities created under the law of a foreign country that are registered to do business in the U.S. by filing of a document with a secretary of state or any similar office in the U.S.
FinCEN recognizes 23 types of entities that are exempt from reporting requirements, which include banks, credit unions, tax-exempt entities, large operating companies, inactive entities, and several other entities. A full list of the exempt companies is available on FinCEN’s official website.
In addition to the so-called “exempt entities,” FinCEN does not require domestic statutory trusts, business trusts, or foundations to comply with the reporting requirements unless they are created by filing of a document with a secretary of state or any similar office in the U.S.
BENEFICIAL OWNERS. There are two types of individuals who FinCEN considers to be “beneficial owners”:
All individuals who own or control at least 25% of the reporting company’s ownership interest. Ownership interest includes, but is not limited to, equity, stock, voting rights, convertible instruments, and options or privileges to buy or sell.
- All individuals who exercise substantial control over affairs of the reporting company. Substantial control exists if any of the following criteria is met:
- an individual is a senior officer;
- an individual has authority to appoint or remove senior officers or a majority of directors of the reporting company;
- an individual is an important decision-maker who directs, determines or substantially influences decisions made by the reporting company regarding business, finances, or structural changes.
- an individual has any other form of substantial control over the reporting company (control exercised in new and unique ways can still be substantial).
FinCEN recognizes five exceptions to the definition of “beneficial owner,” including minor children, nominee/intermediary/custodian/agent, future inheritors, employees who meet certain criteria, and creditors.
There is no limitation to the number of beneficial owners who shall be included in the BOI report.
COMPANY APPLICANTS. For companies formed on or after January 1, 2024, each reporting company has to report one or, at most, two company applicants. There are two categories of people who are considered “company applicants”:
- The “direct filer” is an individual who “would have actually physically or electronically filed the document with the secretary of state or a similar office.”
- The individual who “directs or controls the filing action” is an individual “who was primarily responsible for directing or controlling the filing of the creation or first registration document.”
Companies that are formed prior to January 1, 2024 do not have to report their company applicants.
INFORMATION TO BE REPORTED. FinCEN requires each reporting company to disclose certain information about the company itself, its beneficial owners and company applicants for companies created or registered on or after January 1, 2024.
Each reporting company must report the following information:
- Full legal name of the company
- Fictitious business name (aka dba) or trade name
- Complete current U.S. address for companies operating in the U.S. or the primary location in the U.S. if the principal place of business of the company is not in the U.S.
- Jurisdiction of formation (i.e., state, tribal or foreign agency that the reporting company first registered with)
- Internal Revenue Service Taxpayer Identification Number (typically, EIN)
- for a foreign reporting company without a Taxpayer Identification Number (TIN), a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.
Each beneficial owner and company applicant must report the following information:
- Full legal name
- Date of birth
- Complete current residential address except, if a company applicant is a person who forms or registers a company in the course of business, such individual can report business street address.
- Image one of the following:
- U.S. passport
- State DL
- Identification document issued by a state, local government, or tribe
- If none of the documents described above is available, then a foreign passport.
FinCEN allows individuals and reporting companies to apply for a “FinCEN ID,” which is a unique number that an individual or reporting company can save for future use when registering new companies or filing updated BOI reports with FinCEN.
WHEN TO FILE THE INITIAL REPORT. Reporting companies are divided into three groups that have different deadlines to comply with the initial BOI reporting requirements based on the year they were created or registered in:
| Group | Year of creation or registration | Deadline to file the initial report |
| I | Before January 1, 2024 | January 1, 2025
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| II | January 1, 2024 – December 31, 2024 | 90 calendar days from date of receiving actual or public notice of creation or registration.
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| III | On or after January 1, 2025 | 30 calendar days |
If you made a mistake on your BOI report or the information previously filed is no longer accurate, you have 30 calendar days from the time you become aware or have reason to know of an inaccuracy to file a corrected BOI report.
PENALTIES. FinCEN adopted severe penalties for a failure of a reporting company to timely file the initial BOI report, timely updating the existing BOI report, or willfully attempting to provide false or fraudulent information on the BOI report. Such failures can result in a civil penalty of up to $500 for each day the violation continues or criminal penalties including imprisonment for up to two years and a fine of up to $10,000.
FINAL THOUGHTS. I sincerely hope that the information provided above sheds some light on what business owners are expected to deal with in the years to come. FinCEN continues to update their official website and post new information about the reporting requirements. Be aware that FinCEN will NOT accept any BOI reports until January 1, 2024, so do not rush to get started early. Do NOT disclose your personal information to scammers who impersonate FinCEN agents and contact you to collect your personal information.
If you are planning to start a new business that requires registration with the Secretary of State, you might consider doing it sooner rather than later, or in other words, do not wait until January 1, 2024, as you will have only 3 months to file your initial BOI report and you will have to disclose the identity of the company applicant. Feel free to contact our office with any questions and concerns that you might have regarding the BOI reporting requirements.