2024 Beneficial Ownership Interest Reporting Requirements

2024 Beneficial Ownership Information – Overview of Reporting Requirements

The Corporate Transparency Act (CTA) established uniform Beneficial  Ownership Information (BOI) reporting requirements for certain corporations, LLCs, and other similar entities, Beginning January 1, 2024, certain domestic and foreign entities are required to file reports with the Financial Crimes Enforcement Network (FinCEN) that identify:

(1) the beneficial  owners of the entity and

(2) the individuals who filed an application with a governmental authority to create the entity or register it to do business.

These requirements were enacted as part of the CTA and are intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.

Business Owners are strongly advised to view the FinCen Website (www.fincen.gov/boi) for filing information, and to seek legal counsel to ensure timely and accurate compliance.

Reporting Requirements

Each reporting company has to file an initial report:

  • Entities created or registered on or after January 1, 2024 have 30 days from creation or registration to file the initial report while
  • entities created or registered before January 1, 2024 have until January 1, 2025 to file the initial report.
  • Proposed regulations, however, would extend that filing deadline from 30 days to 90 days for entities created or registered on or after January 1, 2024, and before January 1, 2025, to give those entities additional time to understand the new reporting obligation and collect the necessary information to complete the filing. Entities created or registered on or after January 1, 2025, would have 30 days to file their BOI reports with FinCEN. Reporting companies have to file an updated report if there are any changes to the required information previously submitted and/or a corrected report if any report was inaccurate when filed and remains inaccurate.

FinCEN is in the process of creating a secure electronic filing system that will be accessed via their website and will begin accepting reports on January 1, 2024.

Reporting Exemptions

There are 23 specific exemptions from the BOI reporting requirements, typically for companies that are already subject to strict regulatory reporting requirements (e.g., financial institutions, securities brokers, insurance companies). There are also exemptions for large operating companies and inactive entities. A large operating company is a business with more than 20 full-time U.S employees, a physical place of operations in the U.S., and more than $5,000,000 of U.S.-sourced gross receipts reported on their prior year income tax return. An inactive entity is an entity in existence before 2020 that is not owned by a foreign person and has not had an ownership change in the preceding 12-month period. It cannot be engaged in active business, hold any assets, or send or receive any funds over $1,000 in the preceding 12-month period.

Beneficial  Ownership Information (BOI)

The initial report must include BOI for the reporting company’s beneficial  owners and certain company applicants. BOI includes an individual’s full legal name, date of birth, street address, and a unique ID number. The unique ID number can be from a nonexpired U.S. passport, state driver’s license, or other photo-identification card issued by a state or local government. If the individual does not have any of those documents, then a nonexpired foreign passport can be used. An image of the document showing the unique ID number must also be included with the report. Similar information about the reporting company must also be reported, including the company’s legal name, DBA, street address, jurisdiction where it was formed or registered, and tax ID.

Beneficial  Owners

A beneficial  owner is any individual who, directly or indirectly, exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s ownership interests. An individual might be a beneficial  owner through substantial control, ownership interests , or both. Individuals have substantial control if they make important decisions about the reporting company’s business, finances, or structure. By default, a company’s senior officers are automatically deemed to have substantial control. Senior officers include the president, chief financial officer, general counsel, chief executive officer, chief operating officer, and any other officer who performs a similar function, regardless of their official title.  Ownership interest is defined broadly and includes any of the following: equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership [31 CFR 1010.380(d)]. An individual may have ownership in a reporting company through ownership in one or more intermediary entities that separately or collectively own an interest in a reporting company. For example, assume Diane owns a 50% interest in Company A, and Company A owns an 80% interest in Company B. Diane indirectly owns a 40% interest in Company B and is, therefore, a beneficial  owner of Company B.

There are five exceptions to the definition of a beneficial  owner: (a) a minor child when the parent or guardian’s information is reported; (b) an individual acting on behalf of a beneficial  owner as a nominee, intermediary, custodian, or agent; (c) an employee who is not a senior officer and is acting in their capacity as an employee; (d) an individual having only a future interest in the reporting company through a future inheritance; and (e) a creditor of the reporting company.

Company Applicants

The company applicant is the individual who directly files the document that creates or registers the reporting company. If more than one individual participates in filing the document, the person primarily responsible for overseeing the filing is also considered a company applicant. So, up to two individuals can be the company applicant. Only certain reporting companies must include information about their company applicants in their BOI reports. These are domestic reporting companies created on or after January 1, 2024 or foreign reporting companies first registered to do business in the United States on or after January 1, 2024.

FinCEN Identifiers

Individuals and reporting companies can request a FinCEN identifier (FinCEN ID) to use in place of supplying detailed information on the report. A FinCEN ID is a unique identifying number assigned by FinCEN after the individual or reporting company provides FinCEN with the same information as is required on the BOI report. Once a beneficial owner or company applicant has obtained a FinCEN identifier, reporting companies may report it in place of the otherwise required personal information about the individual in BOI reports. A FinCEN ID may be useful to individuals that would prefer to send their personal information directly to FinCEN rather than through the reporting company. Or it may be useful to individuals that are required to supply information as a beneficial owner or company applicant of several reporting companies..

Updating or Correcting Information in Previously Filed Reports

If there is any change to the required information about the reporting company or its beneficial owners in a BOI report, the company must file an updated BOI report no later than 30 days after the date on which the change occurred. A reporting company is not required to file an updated report for any changes to previously reported personal information about a company applicant. An inaccuracy is identified in a previously filed BOI report, the reporting company must correct it no later than 30 days after the date the company became aware of the inaccuracy or had reason to know of it. This includes any inaccuracy in the required information provided about the reporting company, its beneficial owners, or its company applicants.

The requirement to file an updated BOI report within 30 days of a change to previously reported information is a significant risk area. Reporting companies may not initially realize the extent of this requirement. Any change to the information of the reporting company or a beneficial owner must be reported. This can include, for example, hiring a new CEO, a sale that changes who meets the 25% ownership interest threshold, or a change to a senior officer’s home address. Entities who are subject to the BOI reporting requirements should create a system to identify reportable changes in a timely manner.

Failure to Report Complete or Updated Information

Penalties for noncompliance are steep. Reporting companies are responsible for filing BOI reports, but beneficial owners (including senior officers) and company applicants are also subject to civil and criminal penalties for failing to provide information or providing false information to the reporting company. The fine for willfully failing to complete an initial or updated report or for willfully providing false or fraudulent information to a reporting company is $500 per day, up to $10,000 and imprisonment for up to two years. The fine for knowingly disclosing or using BOI without authorization is $500 per day, up to $250,000 and imprisonment for up to five years. A safe harbor to avoid penalties is available if a corrected report is filed no later than 90 days after the report with inaccurate information is submitted.