Beginning on January 1, 2024, most small businesses will be required to report ownership and management information to the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department. Under the Corporate Transparency Act, passed by Congress in 2021, businesses must file Beneficial Ownership Information (BOI) Reports providing certain company information and disclosing individuals who own or control at least 25% of a company or have substantial control over the company. These reporting requirements, described and regulated in FinCEN’s Reporting Rule, are designed to assist authorities in detecting, preventing, and punishing terrorism, money laundering and other misconduct through the use of business entities. The Reporting Rule imposes a significant burden on small businesses required to provide this beneficial ownership information.
This is a brief overview of the Reporting Rule’s requirements.
Who must file BOI Reports?
The Reporting Rule provides that domestic and foreign companies that are registered to do business in any US state, territory, possession, or tribal jurisdiction, must file a BOI report, unless otherwise exempt. Companies that register with the Secretary of State or equivalent office are generally reporting companies under the Rule. These include corporations (Inc., Corp. Ltd. entities) including S-Corps and Professional Corporations 1 (PC’s), limited liability companies (LLC’s), limited liability partnerships (LLP’s), and registered business trusts. The Rule exempts twenty-three specific businesses from the reporting requirements, including banks, credit unions, insurance companies, tax-exempt entities, public utilities, securities brokers and dealers, and accounting firms.
When must BOI Reports be filed?
New entities formed and registered after January 1, 2024 must file the BOI report with FinCEN within 90 calendar days of receiving notice that the entity has been formed or registered with the secretary of state or similar agency.1 The date of formation may or may not be the starting date, depending on when the entities registration is accepted by the secretary of state or similar agency. Entities formed prior to January 1, 2024, have until January 1, 2025, to submit the BOI report to FinCEN. Failure to comply with this rule and submit the required BOI report could result in civil penalties, including fines of up to $500 per day that violation continues, or criminal penalties. Penalties can be assessed against the company as well as senior officers of the non-compliant entity.
What must be reported?
The BOI report must identify its “beneficial owners.” Beneficial owners are individuals who directly or indirectly exercise substantial control over the reporting entity or own or control at least 25% of the ownership interest in the reporting entity. Reporting companies may have multiple beneficial owners. Individuals exercising substantial control include senior officers, individuals with authority to hire or fire senior officers or appoint or remove directors or managers, and individuals who direct, determine, or have substantial influence over important company decisions. The Rule requires owners holding more than 25% of the equity, stock, voting rights, beneficial interests, capital, profit interests, options, or convertible instruments, must also be identified, even if they do not exercise substantial control of the company. Minor children, individuals acting in a custodial or agent capacity, non-senior employees, individuals who may inherit an interest in the reporting company, and creditors of the reporting company may be exempt from identification depending on the circumstances.
The Rule also requires certain companies to include “company applicant” information in their BOI reports. Company applicant information is required for all reporting entities created or first registered to do business on or after January 1, 2024. If the business was created or first registered to do business prior to January 1, 2024, it is not required to report “company applicant” information. The company applicant must be an individual who is the direct filer of the BOI report. If a second individual directs or controls the filing action, that individual must also be identified. Therefore, if more than one person is involved with the filing of the BOI report, two company applicants must be reported. The Rule only permits companies to identify two company applicants. The company applicant cannot be a company or other legal entity; the company applicant can only be an individual.
How are BOI reports filed?
BOI reports must be filed electronically using FinCEN’s secure e-filing portal. The BOI report must contain the legal name of the business, any trade or d/b/a names, a complete current US address that serves as the principal place of business in the United States, the jurisdiction of formation or registration, and the taxpayer identification number issued by the IRS. With respect to beneficial owners and company applicants, the report must contain the name, date of birth, current residential address, and identification number from a passport, state driver’s license or other government issued identification document. There is a continuing obligation to revise or supplement the BOI report if there are errors or changes. FinCEN states that it will store the BOI data it receives using security measures typically used to protect non-classified yet sensitive information and will only share the BOI reports with lawfully permitted users. FinCEN will not begin accepting beneficial ownership information reports until January 1, 2024.
At this time, there are no official or required forms for providing the BOI information. Given that the information is to be submitted on-line, it is likely that the information will be entered in an on-line questionnaire with required fields.
Where can I turn for more information?
DeMoura|Smith is prepared to assist and advise small businesses and their owners to comply with their reporting obligations. The Firm has also created a form designed to assist small businesses in collecting the required BOI data and to aid in its on-line submission to FinCEN. To request this form or get further information about BOI reporting requirements, please contact Ken DeMoura at kdemoura@demourasmith.com or call 781- 914-3770.
FinCEN has published an on-line Small Entity Compliance Guide relating to the BOI reporting requirements, as well as a FAQ page on its website at www.fincen.gov/boi
1 On November 29, 2023, FinCen announced that the deadline for companies created or registered in 2024 to file BOI Reports has been extended from 30 days of creation or registration to 90 days of creation or registration.
