UPDATE: A U.S. District Court has struck down the Corporate Transparency Act which mandates this registration requirement. The U.S. Government clearly intends to appeal the decision as the BOI filing requirements remain on the FinCEN website. Companies should nevertheless consider themselves to be free of this obligation pending further decisions by higher court(s).
As of January 1, 2024, many domestic and foreign companies operating in the U.S. are required to file a Beneficial Ownership Information (BOI) report to the Financial Crimes Enforcement Network (FinCEN) in the US Department of Treasury.
The Corporate Transparency Act (CTA) enacted in 2021 created this new reporting requirement to learn more about the individuals behind the over two million companies being formed in the U.S. each year. It is part of the U.S. government’s efforts to make it more difficult for “bad actors to hide or to benefit from their ill-gotten gains through shell companies or other opaque ownership structures”.
FinCEN finalized the Beneficial Ownership Information Reporting Rule in September 2023. This post explains its key provisions and how they impact small businesses.
What companies are required to file the BOI Report?
Most small domestic and foreign-owned companies operating in the U.S. will likely need to file. The Rule exempts from the reporting requirement 23 specific types of entities which fall generally into the following categories (not a complete list):
- Securities broker/dealer, reporting issuer, exchange or clearing agency
- Entity registered under the Commodity Exchange Act
- Bank, credit union, depository institution holding company, money services business
- Investment company/adviser, venture capital fund adviser
- Insurance company, state-licensed insurance producer
- Accounting firm
- Governmental authority
- Public utility
- Tax-exempt entity. Entity assisting a tax-exempt entity
- Large operating company
A company created under the laws of a U.S. state, territory, or Indian tribe that does not fall within these categories should actively explore whether it is required to file. A company organized under the laws of a foreign country and registered to do business in the U.S. may be required to file as a “foreign reporting company”. FinCEN’s Small Entity Compliance Guide guides companies through the process of determining whether they meet or are exempted from the Reporting Rule’s requirements.
Who is a Beneficial Owner?
A beneficial owner is an individual who owns or controls at least 25 percent of a company or has substantial control over the company. FinCEN expects that every reporting company will be substantially controlled by one or more individuals. This is quite likely to be true for many small businesses. FinCEN’s Small Entity Compliance Guide assists companies requiring that support through the steps they can take to determine the company’s beneficial owner(s) and whether an owner may be exempt from the Reporting Rule’s requirements.
Requirement to Report Company Applicants
A domestic or foreign company that meets the Reporting Rule requirements and that was created on or after January 1, 2024 will be required to also report its company applicants. A company applicant is an individual who either directly filed the documents to register the company in the U.S. or controlled the process of getting the company registered in the U.S.
Companies or legal entities cannot be company applicants. FinCEN’s Small Entity Compliance Guide also aids companies through the process of determining the company applicant.
What Information is Required?
The BOI report collects basic identifying information about any individual who qualifies as a beneficial owner of a reporting company. The report is filed electronically on FinCEN’s site. The required information includes such details as full legal name, complete address, and date of birth supported by an Identification document, such as a driver’s license or passport, uploaded onto the site. First-time filers may check the box to be issued a FinCEN Identifier after filing. Alternatively, companies may first apply for the FinCEN Identifier, which can then be provided in place of the personal information required during the filing process. FinCEN assures filers that their information will be stored in a confidential and secure database.
When Must Companies File?
Companies that are required to file the BOI report have differing deadlines depending on when the company was created or registered to do business in the U.S.
- Companies created or registered to do business before January 1, 2024 must file their initial BOI reports between January 1, 2024 and January 1, 2025.
- Companies created or registered on or after January 1, 2024, and before January 1, 2025, have ninety (90) calendar days after receiving actual or public notice that their company’s creation or registration is effective to file their initial BOI reports.
- Companies created or registered on or after January 1, 2025, will have thirty (30) calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports.
There is no requirement to fine annually. However the initial BOI report must be updated or corrected as needed.
Penalties for Non-Compliance
A company that willfully fails to file the BOI report or knowingly submits false information may incur civil penalties of up to US$500 per day that the violation continues. Senior officers of an entity may face criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.
Conclusion
Having filed my own company report, I found the process to be relatively pain-free (except for the challenge to get my identifying document to the right size for uploading). Companies should not encounter major challenges in complying with this new rule. Furthermore, there is no requirement to file annually, although companies should insert into their compliance manual procedures to ensure that any required changes or updates are provided in a timely manner. Contact us if you need more information or assistance.
I am a seasoned international trade and customs attorney, and policy adviser for various companies and governments with a demonstrated history of successfully developing and implementing sustainable and dynamic trade programs. I am experienced in creating partnerships with various business-support organizations to drive compliance and growth in the international market.
