The Beneficial Ownership Information Reporting Rule is a new Federal Law that mandates the filing of beneficial ownership information (BOI) reports, for certain business entities, to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). FinCEN has published a guide intended to assist small organizations’ efforts to understand the requirements.
The Federal Government implemented this rule by enacting Section 6403 of the Corporate Transparency Act on September 30, 2022. The rule imposes reporting obligations on certain business entities under the umbrella of the Anti-Money Laundering Act of 2020, to reduce illicit financial activities which may negatively impact national security and economic prosperity.
Reporting Company Defined
Any business entity required to file a BOI report is known as a Reporting Company. A Reporting Company is defined as any business entity, whether formed in the United States or in a foreign country, which is registered to do business in the United States with any state’s Secretary of State (or analogous office), and which does not qualify for an exemption. Any business that qualifies for an exemption is not subject to the BOI reporting requirement.
There are twenty-three (23) categories of exempted entities which are identified and detailed in the aforementioned publications. Of note: banks, insurance companies, insurance agencies, public accounting firms and Exchange Act registered entities are among the types of businesses which may be exempt from the BOI reporting requirement.
Information Which Must Be Reported
If you’ve determined that your entity is required to file a BOI report, you’ll need to report basic information about the entity, in addition to personal information for the entity’s Beneficial Owners and (for entities formed after January 1, 2024) Company Applicants.
The required entity information includes: the full legal name of the entity, any trade names (DBAs), complete US address, jurisdiction of formation/incorporation, and Federal Employer Identification Number (FEIN) or Taxpayer Identification Number (TIN).
The required Beneficial Owner and Company Applicant information includes: full legal name, date of birth, complete current residential address*, and the unique identification number and jurisdiction of issuance, and an image, of a non-expired U.S. passport, driver’s license, state or tribal issued identification card, or, in the absence of any of the previous documents, a foreign passport.
*Company Applicants whose name appears on formation/incorporation documents solely on account of their role in the course of their business (e.g. paralegals) may report the entity’s business address in lieu of their residential address.
Who is a Beneficial Owner
A Beneficial Owner is any individual who directly or indirectly 1) exercises Substantial Control over a Reporting Company or 2) owns or controls at least 25% of the ownership interests of a Reporting Company. A Reporting Company may have more than one Beneficial Owner.
An individual is deemed to exercise Substantial Control over a Reporting Company if they:
- Are a Senior Officer (President, CEO, General Counsel, COO, or anyone performing a similar function, regardless of title) of the Reporting Company
- Possess the authority to appoint/remove Senior Officers or a majority of directors of the Reporting Company
- Are an important decision-maker (i.e. makes decisions regarding business strategy, corporate structure, finances) within the Reporting Company; or
- Possess any other form of substantial control over the Reporting Company (“catch-all”).
Who is a Company Applicant
There are two categories of Company Applicants: “Direct Filers” and “Directs or Controls the Filing Action” filers. Direct Filers are defined as the individuals who physically or electronically submit the formation/incorporation/registration document with a Secretary of State. Individuals are considered “Directs or Controls the Filing Action” filers if they direct or control the filing of such a document despite not having personally submitted the document.
A Direct Filer must always be identified and reported; A Directs or Controls the Filing Action filer may or may not need to be identified and reported, depending on the specific circumstance surrounding the submission of the document.
Entities in existence prior to January 1, 2024 will not need to worry about reporting Company Applicants; all entities created on or after January 1, 2024 are required to report Company Applicants.
Beneficial Ownership Reporting Requirements for Filing
BOI reports will be submitted electronically to a secure, online portal which will be found on the FinCEN website. This portal is currently under development and will not be ‘live’ or even accessible until January 1, 2024, when this reporting obligation goes into effect.
Timeframe & Filing Deadline
The BOI reporting requirement commences January 1, 2024; no filings will be accepted prior to this date. Reporting Companies in existence prior to January 1, 2024 have until December 31, 2024 to file an initial BOI report. Reporting Companies which are incorporated/formed after January 1, 2024 must file an initial BOI report within ninety (90) days of its incorporation/formation date; Reporting Companies which are incorporated/formed after January 1, 2025 must file an initial BOI report within thirty (30) days of its incorporation/formation date.
Reporting Companies (and their Senior Officers) which fail to submit timely required BOI reports are subject to civil and criminal penalties. Penalties will also be levied upon those who willfully provide, or attempt to provide, fraudulent information on a BOI report. Penalties may include a $500/day fine (for each day the violation continues) levied upon the entity and a $10,000 fine and/or up to two years imprisonment levied upon Senior Officers.
The Beneficial Ownership Information Reporting Rule takes effect January 1, 2024 and will impact many companies. Intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, the rule imposes specific reporting requirements for companies that are deemed to be Reporting Companies. If you have any questions about your company’s status, or how to prepare and file your Report, please feel free to contact us.
This article is intended to alert impacted businesses of a new Federal filing requirement and offer an overview of the pertinent points thereof. It does not constitute legal advice; please consult a legal professional for advice specific to your organization.