The Financial Crimes Enforcement Network (“FinCEN“), a bureau of the United States Department of Treasury, seeks to create a database of personal information of each person who owns or otherwise exerts substantial control over a business within the United States (a “Beneficial Owner“) in an effort to combat tax evasion and fraud, money laundering, and the abuse of shell and front companies by criminals, corrupt officials, and other bad actors doing business within the United States. FinCEN’s database will be utilized to identify, investigate, and analyze suspicious financial activity reported to FinCEN by banks and/or government agencies.
To accomplish these goals, as of January 1, 2024, many companies in the United States will have to file a Beneficial Ownership Information Report (“BOI Report“) with FinCEN pursuant to the implementing regulations of the Corporate Transparency Act passed in 2021. The BOI Report must contain certain identifying information for the Beneficial Owners of a “Reporting Company” and are anticipated to be submitted through an online portal that FinCEN is currently developing.
What is a Reporting Company?
The rule affects corporations, limited liability companies, business trusts, and such other entities created by the filing of a document with a secretary of state or any similar office under the law of a state or Native American tribe. These entities, referred to as “Reporting Companies“, may be domestic or foreign. A foreign Reporting Company is an entity formed under the law of a foreign country that is registered to do business in any state or Tribal jurisdiction. Notably, certain types of entities will be exempt from the BOI Report filing obligation, such as tax-exempt entities and “large operating companies”, which are companies with at least 20 full-time employees in the United States, an operating presence with a physical office in the United States, and reported more than $5,000,000 in gross sales or receipts in the United States on the entity’s prior year tax return.
What is a BOI Report?
The BOI Report requests the following identifying information with respect to each Beneficial Owner of the Reporting Company: the (a) name, (b) date of birth, (c) residential address, and (d) ID number on an individual’s passport, driver’s license, or state-issued identification card, along with an image of such document.
Who is a Beneficial Owner?
An individual qualifies as a “Beneficial Owner” when such individual either (a) owns or controls at least twenty-five percent (25%) of the ownership interests of a Reporting Company, or (b) directly or indirectly exercises substantial control over a Reporting Company. Substantial control is a subjective determination, but generally applies to any person who exerts influence over significant decisions regarding a Reporting Company, such as through board representation, voting rights, or authority to exercise significant decisions over a Reporting Company like senior officers (e.g., the President, CEO, COO, and/or General Counsel). There must be at least one Beneficial Owner of each Reporting Company, but there is no limit as to how many people can be Beneficial Owners.
When must a BOI Report be filed?
Reporting Companies formed on/after January 1, 2024 will have thirty (30) days to submit their BOI Reports, though there is currently a proposed amendment to the rule to allow entities formed between January 1, 2024 and December 31, 2024 to submit their BOI Reports within ninety (90) days of formation.
All Reporting Companies in existence prior to January 1, 2024 must submit BOI Reports by January 1, 2025.
BOI Report for “Company Applicants”
Each Reporting Company formed after January 1, 2024, will also be required to file a BOI Report for the “Company Applicant“. There are two types of Company Applicants: (1) the “direct filer” who directly files the document that creates the Reporting Company, and (2) the individual who is primarily responsible for directing or controlling the filing of the formation of the Reporting Company. Each Reporting Company will have at least one Company Applicant for which they must file a BOI Report (and at most two if there is an individual responsible for directing or controlling the filing other than the direct filer, such as when a law firm representative directs a third party vendor, such as CT Corporation, or any other corporate filing organization, to directly file the formation documents).
Penalties for Failure to File BOI Report
Failure to submit a BOI Report, or willfully submitting false information, carries civil fines of up to $500 per day, and/or criminal penalties of imprisonment for up to two years and/or a fine of up to $10,000. A Reporting Company’s senior officers may be held accountable for such failures or omissions.
To determine your entity’s reporting obligations, contact the authors, the Garfunkel Wild attorney with whom you regularly work, or reach out to us at [email protected]. For more information generally, please refer to FinCEN’s website, at www.fincen.gov/boi.