Beneficial Ownership Information – Reporting Requirements

Beneficial Ownership Information – Reporting Requirements

Last year, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department, announced its final rule requiring many entities to file a beneficial ownership information (BOI) report in 2024.

This report is mandated under the Corporate Transparency Act, a federal law requiring many companies to identify their beneficial owners (individuals who own at least a 25% interest in, or have substantial control over, an entity). The purpose of the requirement – per FinCEN – is to provide transparency about who owns entities and thus help strengthen national security and protect financial systems by detecting and preventing criminal activity such as money laundering, fraud, and other illicit activities.

A domestic or foreign entity who meets FinCEN’s definition of a “reporting company” and does not qualify for an exemption must submit a report as either a domestic reporting company (a corporation, LLC or any business entity created through filing a registration document with a secretary of state or similar office under the law of a state or Indian tribe), or a foreign reporting company (a corporation, LLC or other entity formed under the law of a foreign country that filed a document with a secretary of state or any similar office to register to do business in any U.S. state or tribal jurisdiction).

Most limited liability companies, corporations, S corporations, limited partnerships, limited liability partnerships and business trusts meet the reporting company definition.  Meanwhile, sole proprietorships and general partnerships do not have to report beneficial ownership information as they are not officially registered entities.

Some entities that meet the reporting company definition may also be exempt. FinCEN has listed 23 categories of companies that may qualify for exemption.

Beneficial owners are individuals who own or control at least 25% of the ownership interests in a reporting company and/or directly or indirectly exercises substantial control over the entity.   Additionally, if individuals meet at least one of the four criteria below, they are considered to have substantial control and are considered a beneficial owner:

  • They have a senior position of authority, such as president, CEO, CFO, COO, general counsel, etc.
  • They are authorized to appoint or remove any senior officer or a majority of the board of directors (or similar governing body).
  • They make or influence the reporting company’s critical business and financial decisions by the reporting company.
  • They have some other form of substantial control over the reporting company.

There are also exceptions to beneficial owners, as listed on the FinCEN website.

What information is requested in the beneficial ownership information report?

The BOI report collects various details about reporting companies including entity name (including any DBAs), jurisdiction, business address, and Federal ID number.

For beneficial owners and company applicants, the BOI collects the individual’s full legal name, birthdate, residential street address, and personal identification number and issuing jurisdiction from a non-expired U.S. passport, state driver’s license, or other ID document issued by a state, local government, or tribe.  Additionally, an image of the identification should be added to the report.

FinCEN offers beneficial owners, company applicants and reporting companies the option to obtain a FinCEN identifier, a unique ID number that they can use in their BOI report to streamline the filing process.

When are beneficial ownership reports due?

FinCEN will begin accepting the reports on January 1, 2024. They will be submitted electronically through FinCEN’s secure online filing system. You will be able to find instructions for completing the BOI report form on FinCEN’s website.

  • For reporting companies created or registered to do business before January 1, 2024, the initial BOI report is due by January 1, 2025.
  • For reporting companies created or registered on or after January 1, 2024, and before January 1, 2025, the initial BOI report is due within 90 days of the entity’s formation.
  • For reporting companies created or registered on or after January 1, 2025: Initial BOI report is due within 30 days of the entity’s formation.

BOI filing is free, and BOI reports are not required on a recurring basis. However, entities must report any changes or corrections to their BOI information within 30 calendar days of when the change occurred or when they became aware of any inaccuracy.

What are the penalties for not filing a BOI report?

FinCEN will issue steep penalties of up to $500 per day for each day a BOI report is late, up to a maximum of $10,000.  Willful failure or attempt to provide false or fraudulent beneficial ownership information could also bring additional fines, or up to two years’ imprisonment.

How do you file?

Entity reports will be filed electronically through the FinCEN’s e-filing system once it opens in 2024.

Guidance from the American Institute of Certified Public Accountants (AICPA) and other professional resources states that providing certain advice or services on BOI may constitute legal advice, and cautions that CPA firms are unlikely to be able to assist in these matters.  We encourage you to reach out to your attorney or appropriate legal counsel if needed.

Please reach out to us for any additional information.