Effective January 1, 2024, FinCEN Requires Most Businesses to Report Beneficial Ownership Information
Beginning January 1, 2024, most companies have a new requirement to provide information related to their owners and executives. The penalties for failing to file and comply with this new requirement can result in civil penalties of up to $500 per day for each day the violation continues as well as criminal penalties of up to two years imprisonment and $10,000 fine. To avoid these penalties, here is what you need to know.
The Law
In 2021, a bipartisan Congress passed the Corporate Transparency Act (“CTA”). The CTA requires beneficial ownership of companies be reported to the Financial Crimes Enforcement Network (“FinCEN”). The intent of the law is to make it harder for criminals to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.
To Whom Does the CTA Apply?
Almost all companies created by filing a document with a secretary of state are considered a reporting company and required to file a report with FinCEN. Essentially, if you are an LLC, Corporation, Limited Partnership, etc. you are a reporting company, unless you meet an exemption. There are 23 types of entities that are exempt from the reporting requirements. Those entities include banks, insurance companies, accounting firms, tax-exempt entities, large operating companies (gross receipts reported in excess of $5,000,000 from U.S. sources), and inactive entities. For details on the exemption requirements, FinCEN has provided the following compliance guidebook:
READ COMPLIANCE GUIDEBOOK
Where and What Do You File?
A reporting company has to complete its Beneficial Ownership Information (“BOI”) report online here.
The BOI report is relatively short and requests names, addresses, and identifying documentation of beneficial owners of the reporting company. A beneficial owner is either an individual who (1) owns or controls at least 25% of the reporting company’s ownership interests, or (2) exercises substantial control over the reporting company.
The CTA defines those as exercising substantial control over the reporting company as typically a senior officer (C-suite) or an individual who has the authority to remove a senior officer. A member of a board of directors typically does not equate to a beneficial owner unless they have the individual authority to remove a senior officer.
The BOI report only needs to be filed once, but you are required to update the report with any changes. This would include the name or address if the company changes, a beneficial owner’s address changes, or if a beneficial owner leaves the company or a new beneficial owner joins the company. This requires companies to remember to update the report if a C-suite employee leaves or joins the company or ownership of the reporting company changes.
What is the Fee to File the BOI Report?
There is no fee to file the report. The report is also meant to be able to be completed by the company without using an outside company. Questions regarding the report should be directed to a lawyer or CPA.
What are the Deadlines to File the BOI Report?
The deadline to file the BOI report is dependent on when the entity was formed.
If the reporting company was created before January 1, 2024, the reporting company has until January 1, 2025 to file the BOI report.
If the reporting company was created after January 1, 2024, the reporting company has 90 calendar days after receiving notice of the company’s creation to file the BOI report.
Companies created after January 1, 2025 will have 30 calendar days after receiving notice of the company’s creation to file the BOI report.
If there is any change to the beneficial ownership information, an updated BOI report must be filed within 30 days after the date of the change.
Who is a Company Applicant?
The first part of the BOI report requests information about the company applicant. Companies created before January 1, 2024, do not have to provide this information. If the company was created on or after January 1, 2024, the company applicant is the individual who directly files the document that creates or registers the company. If you utilize a law firm, this would be the lawyer who handled the filing. A reporting company will need to obtain the company applicant’s information (address, date of birth, etc.) or may use the company applicant’s FinCEN Identifier if the company applicant has one.
Questions?
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