New Reporting Requirement for Businesses Takes Effect in January!
Starting on January 1, 2024, many businesses will have a new reporting requirement to comply with. This reporting requirement is imposed by the Corporate Transparency Act, which was passed in 2021. A company subject to this reporting requirement (a “Reporting Company”) will be required to report information about the Reporting Company itself and about certain individuals who are involved in the Reporting Company in a report known as a Beneficial Ownership Information Report or “BOI Report.” A Reporting Company will file its BOI Report with the Financial Crimes Enforcement Network (“FinCEN”), which is part of the U.S. Department of the Treasury. FinCEN will use the reported information to combat money laundering, fraud, the financing of terrorism, and other financial crimes.
Which Entities Are Required to File Reports with FinCEN?
In general, domestic corporations, LLCs, and other types of entities created by the filing of a document with a secretary of state’s office will be considered Reporting Companies. Companies formed outside of the United States may also be Reporting Companies if they are registered to do business in the U.S. by virtue of having filed a document with a secretary of state’s office. These domestic and foreign Reporting Companies will be required to file a BOI Report unless they are exempt from the reporting requirement.
There are twenty-three types of entities which may be exempt from filing a BOI Report. These entities are generally entities which are subject to state and federal regulation and, as a result, are already providing the government with the information requested by the BOI Report. Included in these twenty-three exemptions is a broad exemption for “large operating companies,” which are companies that (i) employ more than twenty full time employees in the United States, (ii) maintain a physical office within the United States, and (iii) reported more than $5,000,000 in gross receipts or sales from sources within the United States on the previous year’s Federal income tax return. Another of the twenty-three exemptions is for entities meeting the definition of an “inactive entity.”
What Information is Included in the BOI Report?
The BOI Report must include information about the Reporting Company itself and its “beneficial owners.” In addition, if the company is formed after January 1, 2024 (or, in the case of a foreign Reporting Company, registered to do business in the U.S. after such date) the BOI Report must also include information about the Reporting Company’s “company applicants.”
The Reporting Company
The BOI Report must include the following information about the Reporting Company:
Full legal name
Any trade name or “doing business as” (DBA) name
Current U.S. address of the principal place of business in the U.S.
State, Tribal, or foreign jurisdiction of formation
State or Tribal jurisdiction of first registration to do business in the U.S. (only applicable to foreign Reporting Companies)
Taxpayer/Employer Identification Number
Beneficial Owners
In general, a beneficial owner is an individual that owns or controls at least 25% of the ownership interest in the Reporting Company. An individual may also be a beneficial owner if they exercise “substantial control” over the Reporting Company. An individual exercises substantial control over a Reporting Company if any of the following are true: (i) the individual is a senior officer of the Reporting Company (President, CEO, CFO, etc.); (ii) the individual has authority to appoint or remove senior officers or a majority of the directors of the Reporting Company; (iii) the individual is an important decision-maker on matters relating to the Reporting Company’s business, finances, and/or structure; or (iv) the individual has any other form of substantial control over the Reporting Company.
The BOI Report must include the following information about each of the Reporting Company’s beneficial owners:
Full legal name
Date of birth
Complete current address
Unique identifying number from one of the following non-expired documents (as well as an image of such document):
U.S. passport
State driver’s license
Identification document issued by a state, local, or tribal government
If the individual does not have any of the documents listed above, a foreign passport
Company Applicants
A company applicant is either the individual who directly filed the document that created the Reporting Company (or, in the case of a foreign Reporting Company, filed the document registering the company to do business in the U.S.) or the individual who was primarily responsible for directing or controlling such filing. For purposes of the BOI Report, all Reporting Companies will have at least one company applicant but will have no more than two company applicants. A Reporting Company is only required to report its company applicants if it is either (i) a domestic Reporting Company created on or after January 1, 2024 or (ii) a foreign Reporting Company first registered to do business in the U.S. on or after January 1, 2024. For all other companies, there is no requirement to include information about company applicants in the BOI Report (though information about beneficial owners will still be required).
If the BOI Report is required to include information about the Reporting Company’s company applicants, then the BOI Report will include for each company applicant all of the information required to be reported for beneficial owners (see list above).
When is the BOI Report Required to be Filed?
If the Reporting Company was created (or, in the case of a foreign Reporting Company, registered to do business in the U.S.) before January 1, 2024, the Reporting Company must file its initial BOI Report before January 1, 2025.
If the Reporting Company was created or registered on or after January 1, 2024 but before January 1, 2025, the Reporting Company must file its initial BOI Report within ninety calendar days of receiving its notice of creation or registration.
If the Reporting Company was created or registered on or after January 1, 2025, the Reporting Company must file its initial BOI Report within thirty calendar days of receiving its notice of creation or registration.
In addition to filing initial BOI Reports, Reporting Companies must update and correct their previously filed BOI Reports as needed. If there is any change to the information required to be reported on the initial BOI Report, the Reporting Company must file an updated BOI Report within thirty days after the change occurred. Similarly, if an inaccuracy is identified in any initial or updated BOI Report, the Reporting Company must correct the inaccuracy within thirty days of becoming aware of the inaccuracy.
Note: a Reporting Company is not required to file an updated BOI Report to address any changes to the information provided for a company applicant.
Are There Consequences for Failing to File an Accurate BOI Report?
A Reporting Company’s willful failure to comply with the new FinCEN reporting requirements can result in civil or criminal penalties. An individual who willfully files a false or fraudulent BOI Report on a Reporting Company’s behalf or who supplies false or fraudulent information used in a BOI Report can be held civilly or criminally liable. Civil penalties can amount to up to $500.00 per day for each day that a violation continues. Criminal penalties can include up to two years imprisonment and a fine of up to $10,000.00. The same penalties apply in the case of a willful failure to report complete information or a failure to file a BOI Report at all.
Where Can I Go to Learn More About the BOI Report?
This blog post has addressed many of the general concepts found in the new FinCEN reporting requirement, but it is not a complete overview of the BOI Reporting requirement, which has complexities and exceptions not discussed here. Anyone interested in taking a closer look at this new reporting requirement is encouraged to review the resources available through FinCEN’s website, which are linked below:
Small Entity Compliance Guide https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
Beneficial Ownership Information Reporting FAQs https://www.fincen.gov/boi-faqs
Businesses may submit their BOI Reports to FinCEN at the following link once FinCEN begins accepting BOI Reports on January 1, 2024: https://www.fincen.gov/boi
If business owners have questions about filing their FinCEN reports, I invite them to get in touch. The Law Office of Ryan A. Layton, PLLC is able to help business owners comply with FinCEN’s new reporting requirements and can help business owners address other issues regarding business formation and succession planning.
The information contained in this blog post is intended only as general legal information and should not be construed as formal legal advice on any matter, nor should its presentation be construed as intent on the part of The Law Office of Ryan A. Layton, PLLC to form an attorney-client relationship with any user of this website. For more information, please see this disclaimer.