A Primer On Beneficial Ownership Interest Reporting Obligations

A Primer On Beneficial Ownership Interest Reporting Obligations

If you own or operate a business entity, you should be aware that U.S. domestic and foreign entities doing business in the U.S. may now be required to disclose information regarding their beneficial owners to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). While this new reporting requirement has faced recent court challenges since its implementation at the beginning of 2024, it currently remains in effect. This requirement is being implemented under the beneficial ownership information (BOI) reporting provisions of the Corporate Transparency Act (CTA) passed by Congress in 2021. Requiring entities to submit beneficial ownership and company applicant information to FinCEN is intended to help prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity. This requirement is explained in detail in the release linked here: https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports

Who Must Report?

Many entities are required to file BOI information. Specifically, entities are required to report BOI information if they meet the definition of a “reporting company” and do not qualify for the limited exemptions set forth in the CTA. A domestic reporting company generally includes a corporation, limited liability company (LLC), including single-member LLCs, a limited liability partnership, business trust, limited partnership, and other entities created by filing documents with a secretary of state. A foreign reporting company generally includes entities formed under the law of a foreign country that are registered to do business in the U.S. in any state.

The BOI filings are aimed at identifying the natural persons (as opposed to legal entities) that hold a beneficial interest in the reporting companies. A beneficial owner is broadly defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company.

Regarding the time that each entity has to complete a BOI filing, reporting companies created or registered to do business in the U.S. after January 1, 2024, must file an initial report disclosing the identities and information regarding their beneficial owners within 90 days of creation or registration. Reporting companies created or registered to do business in the U.S. prior to 2024 are required to file an initial report by January 1, 2025. Once the initial report is filed, an updated BOI report must be filed within 30 days of a change to the beneficial ownership of the reporting company.

Failure to make required BOI filings may result in civil penalties of $500 per day and a $10,000 fine, as well as potential criminal penalties.

Who is Exempt?

There are 23 specific types of entities that are exempt from the BOI reporting requirement. Most exemptions apply to entities that are already subject to substantial federal reporting requirements, such as some public companies, banks, securities brokers and dealers, insurance companies, registered investment companies and advisors, and pooled investment companies. Included in the type of entities that may not be required to report BOI are tax-exempt entities, including their subsidiaries.

An exemption is also available for a “large operating company,” generally defined as a company with more than 20 full-time employees, a physical office within the U.S., and more than $5 million in gross receipts or sales from U.S. sources (as shown on a filed federal income tax or information return).

Please consult the resources below for more information. The FinCEN website and resources allow for easy filing of BOI reports, and information on requirements and exemptions is generally clear and readily accessible through the links provided below.

Resources

FinCEN has created a small entity compliance guide which includes detailed information about the exemptions and the information needed for the report, which can be accessed here:  https://www.fincen.gov/boi/small-entity-compliance-guide

Reporting companies are required to file a BOI report electronically through a secure filing system, FinCEN’s BOI E-Filing System. The link to the electronic BOI report is here:  https://boiefiling.fincen.gov/boir/html

Finally, a general overview and a hub to additional links can be found here:  https://fincen.gov/boi