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  • Venus Caruso, Esq.

Regulatory Compliance: Company Beneficial Ownership Information Reporting to FinCEN

Effective January 1, 2024, U.S. companies that qualify as a “reporting company” must file a beneficial ownership information (BOI) report with the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), providing certain information about individuals who own or control them. The beneficial ownership information reporting requirement was enacted by the Corporate Transparency Act, part of the Anti-Money Laundering Act of 2020, and the regulations adopted by FinCEN. The BOI is one tool intended to help FinCEN detect and prevent financial crimes such as money laundering and terrorist financing.

BOI reports must be electronically filed on the FinCEN BOI e-filing system and will be stored in a secure and confidential centralized database. These reports will not be open to the public. However, information supplied in a reporting company's BOI may be shared with certain federal, state, local and tribal officials, as well as foreign officials, who submit a request through the U.S. federal government agency for national security, intelligence or law enforcement purposes. In addition, financial institutions may also be granted access to a reporting company’s BOI with the consent of the reporting company. 


What is a Reporting Company?

Not all companies qualify as a reporting company and certain companies are exempt.

A reporting company means a corporation, limited liability company, limited partnership, or other similar entity that was (i) created or registered by filing its formation or incorporation documents with the secretary of state of a given state in the United States or any similar office under the United States or an Indian Tribe, or (ii) formed under the laws of a foreign country and has registered to do business in the United States, and (iii) does not qualify for an exemption.

Many privately-held U.S. companies will qualify as a reporting company and not be exempt. There are 23 types of legal entities that are exempt and do not have to file a BOI. Most of these exempt entities are already subject to federal or state regulatory reporting requirements, such as banks, federal and state credit unions, insurance companies, securities brokers and dealers, securities exchanges, public companies, clearing agencies, investment companies, public accounting firms, public utility entities, tax-exempt entities, entities that assist tax-exempt entities, and political organizations.

In addition to the above, certain large operating companies and inactive entities are also exempt.

To qualify as an exempt large operating company, the company must meet all of the following six criteria:

  1. It employs more than 20 full time employees (i.e., employees who, in a given calendar month, work at least 30 hours per week);

  2. It has more than 20 full time employees who are employed in the United States;

  3. It regularly conducts its business at a physical office, whether owned or leased, that is located in the United States;

  4. It reports more than $5 million in gross receipts or sales in the previous year on its income tax or information return in the United States;

  5. It reports its $5 million in gross receipts or sales on the applicable IRS form; and,

  6. If its gross receipts or sales from sources outside the U.S. are excluded from the company's sum of gross receipts or sales and the amount remains greater than $5 million.

To qualify as an exempt inactive entity, the entity must meet all of the following six criteria:

  1. It existed on or before January 1, 2020;

  2. It is not engaged in active business;

  3. It is not owned by foreign person;

  4. It has not experienced any change in ownership in the preceding 12-month period;

  5. It has not sent or received any funds greater than $1000 either directly or indirectly through any financial account in which the entity or any affiliate of the entity had an interest in the preceding 12-month period, and

  6. It does not hold any assets of any kind or type whether those assets are located in the United States or abroad.


What is a Beneficial Owner?

A beneficial owner means an individual who either (1) directly or in directly exercises substantial control over the reporting company, or, (2) owns or controls at least 25 percent of the company’s total ownership interests.

What does “substantial control” mean?

An individual is deemed to exercise substantial control over a company if the individual has the power to decide or influence significant matters concerning the company’s line of business, operations, finances, commercial transactions and other governance matters. Generally, the following types of individuals are considered to have substantial control over a company:

  • Senior executive officers, such as presidents, CEOs, CFOs, COOs, general counsel or other like officer titles.

  • Individuals with the power to appoint or remove certain officers or a majority of directors.

  • Individuals who are important decision-makers in that they direct, determine or have substantial influence over important company decisions.

What qualifies as an "ownership interest" in a company?

The types of ownership interests in reporting companies can vary and be multiple. An ownership interest can take the form of owning equity, stock or voting rights, capital or profit interest, convertible instruments (e.g., convertible promissory notes), put, call, straddle or other option or privilege right to buy or sell equity, stock, voting right, a capital or profit interest or a convertible instrument.

Reporting companies are required to identify all individuals who own or control at least 25 percent of the ownership interests of the company.

What type of information about beneficial owners is reported on the BOI?

The type of information about beneficial owners that must reported on a company’s BOI is each owner’s full legal name, date of birth, current address, a unique identifying number from an acceptable form of identification (e.g., U.S. driver’s license, passport, etc.) and an image of the identification card.


When Must a Company File its BOI?

The deadline to file a company BOI depends on the date the company was effectively created or registered. The deadlines are as follows:

  • Companies created or registered before January 1, 2024 must file their BOI by January 1, 2025.

  • Companies created or registered on or after January 1, 2024, and before January 1, 2025, must file their BOI within 90 days of receiving actual or public notice, whichever is earlier, that its creation or registration is effective. In addition, information about the company’s applicants must also be reported. A company applicant means the individual who directly files for the formation or registration of the company’s creation with the secretary of the state in the given state, or the individual who controls or directs the filing.

  • Companies created or registered on or after January 1, 2025 must file their BOI within 30 days of receiving actual or public notice, whichever is earlier, that its creation or registration is effective. The BOI must also include information about the company applicants.

A BOI can only be filed electronically on the FinCEN BOI E-Filing System.


What Are the Penalties for Noncompliance?

A reporting company that willfully fails to file a true and complete BOI is subject to civil penalties of up to $500 for each day the violation continues, or criminal penalties that include a fine of up to $10,000 and/or imprisonment of up to 2 years. Individuals who are responsible for filing the BOI are also subject to these same penalties.


Sources: Corporate Transparency Act; 31 U.S. 5336; 31 C.F.R. 1010.380.


 

The information provided in this post is for general informational purposes and not intended as legal advice or legal opinion for any individual matter. Keep in mind that legal developments or changes to law may occur in the future and, as such, the information contained in this post may not be the most up-to-date legal information. Do consult your own attorney for any legal advice you may require. If you do not have an attorney and would like to explore a potential engagement, please reach out to Venus Caruso using the contact submission form or by using the contact information provided in her bio. 

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