On January 1, 2024 a new reporting requirement went into effect that requires millions of small businesses to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
From the CT Corporation — By Sandra Feldman
Congress imposed this requirement in a statute called the Corporate Transparency Act (CTA), with FinCEN issuing the regulation providing the details on who must file a report, when it has to be filed, and what information has to be reported. Every small business owner needs to know about this new reporting requirement as non-compliance can result in severe penalties. This article addresses some of the main questions small business owners have been asking about BOI reporting.
What is the purpose of the Corporate Transparency Act?
The CTA is mainly an anti-money laundering law. In it, Congress states that bad actors seek to conceal their ownership of corporations, LLCs, or similar entities in the United States to facilitate money laundering, financing of terrorism, tax fraud, and other illegal acts. And according to Congress, federal legislation providing for the collection of beneficial ownership information is needed to protect national interests and better enable efforts to counter those illegal acts.
Who has to file a BOI report?
Every corporation, LLC, or other entity created by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe is required to file a BOI report unless it qualifies for an exemption. Those entities created in the United States and not exempt, and therefore required to file a BOI report, are called “domestic reporting companies”. (Certain entities created in foreign countries and registered to do business in the United States are also required to file a BOI report and are called “foreign reporting companies.”)
Who is exempt from filing a BOI report?
There are 23 categories of entities that are exempt. Most exemptions are for entities that are already subject to substantial federal or state regulation. Exempt entities include, for example, publicly traded companies and other entities that file reports with the SEC, banks, credit unions, money services businesses, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, and accounting firms.
There is also an exemption for what’s called a “large operating company”. A “large operating company” is an entity that (1) employs more than 20 full-time employees in the United States, (2) has an operating presence at a physical office within the United States, and (3) has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales.
What kind of information has to be reported by domestic reporting companies?
A domestic reporting company created before January 1, 2024 has to provide information about the company and about its beneficial owners. A domestic reporting company created on or after January 1, 2024 has to provide information about the company, its beneficial owners, and its company applicants.
What information about the company has to be reported?
The report must set forth the reporting company’s (1) full legal name, (2) any trade or “doing business as” names, (3) complete current street address of the principal place of business, (4) jurisdiction of formation, and (5) taxpayer identification number.
What information has to be reported for each of the beneficial owners and applicants?
The report must set forth their (1) full legal name, (2) date of birth, (3) complete current residential street address (except in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, who has to provide the street address of the business), (4) unique identifying number and the issuing jurisdiction from either a current (i) U.S. passport, (ii) state or local ID document, (iii) driver’s license, or (iv) if the individual has none of those, a foreign passport, and (5) an image of the document from which the unique identifying number was obtained.
Who is a “beneficial owner”?
A beneficial owner is an individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25 percent of its ownership interests.
Who is a “company applicant”?
A company applicant is the individual who directly files the document that creates the domestic reporting company and the individual who is primarily responsible for directing or controlling the filing if more than one individual is involved in the filing of the document.
When does the initial BOI report have to be filed?
A domestic reporting company created before January 1, 2024 must file its initial BOI report by January 1, 2025.
A domestic reporting company created on or after January 1, 2024 and before January 1, 2025 must file a report within 90 calendar days of the date on which it receives actual or public notice that its creation has become effective.
A domestic reporting company created on or after January 1, 2025 must file a report within 30 calendar days of the date on which it receives actual or public notice that its creation has become effective.
What if there are changes to the reported information?
If there is any change in the information reported about the reporting company or its beneficial owners, the reporting company must file an updated report within 30 calendar days after the date on which the change occurs. This includes a change in who the beneficial owners are and if the reporting company becomes eligible for an exemption. There is no requirement for a reporting company to update information about the company applicant.
What if a filed BOI report contains an error?
If a report was inaccurate when filed, a corrected report must be filed within 30 calendar days after the reporting company becomes aware of or has reason to know of the inaccuracy.
How are BOI reports filed?
The initial BOI report and all updates and corrections are filed electronically with FinCEN through a system that will be available via FinCEN’s website. There is no fee for filing the reports.
Can an individual beneficial owner or company applicant provide their information directly to FinCEN instead of the reporting company?
Individuals can apply to FinCEN for a unique number called a FinCEN Identifier. They must file an application with FinCEN containing all of the required information. The individual can provide the FinCEN Identifier to the reporting company, which can then include the FinCEN Identifier on their BOI report. An individual obtaining a FinCEN Identifier will have to file an updated application within 30 days of any change in the required information.
Who has access to the information contained in the BOI report?
FinCEN is authorized to disclose BOI to a limited group of requestors including (1) federal agencies engaged in national security, intelligence and law enforcement, (2) state law enforcement agencies with a court order, (3) the Treasury Department, (4) financial institutions with the company’s consent, (5) government regulators of financial institutions, and (6) certain foreign authorities requesting information through a U.S. agency.
Where can I find more information about BOI reporting?
Access FinCEN’s website for information about BOI reporting.
Sandra Feldman has been with CT Corporation since 1985 and has been its Publications Attorney since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.
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