As part of the Corporate Transparency Act enacted in 2021, there is a new requirement for companies to provide Beneficial Ownership Information (BOI) reporting related to its beneficial owners and company applicants. This report is intended to combat money laundering, illicit financial activity and prevent money from being passed through shell companies by unreported individuals.

So, how will the BOI reporting work, who does it apply to, and when will it go into effect?

How Will the BOI Reporting Work?

The BOI reporting will be submitted electronically to the Financial Crimes Enforcement Network (FinCEN) and has no filing fee.

The BOI reporting will provide information on the reporting company, including the full legal name, “doing business as” names, complete current street address, jurisdiction information, and the taxpayer identification number (TIN)/employer identification number (EIN). It will also require information of each beneficial owner and company applicant, including their full legal name, date of birth, complete current U.S. address and identifying number, jurisdiction, and an image (with a unique identification number) of a U.S. passport, state driver’s license, or state or local identification document.

Who Does BOI Reporting Apply to?

BOI reporting applies to domestic companies that are entities (corporations, LLCs, SMLLCs and possibly trusts) created by filing a document with the Secretary of State or a similar office under state law or Indian tribe. It also includes foreign companies that are registered to do business in any U.S. state or Indian tribe by filing a document with the Secretary of State or similar office under state law or an Indian tribe.

However, there are some exemptions from BOI reporting for companies that are already subject to separate substantial regulation. Such companies include, but are not limited to:

  • Publicly traded companies
  • Financial services companies
  • Accounting firms
  • Tax-exempt organizations
  • Large operating companies

Large operating companies are defined as a company with more than 20 full time employees (at least 30 hours per week), with an operating presence at physical office within the U.S., that has filed a U.S. tax return for the previous year with more than $5 million in U.S. gross receipts (aggregation rules apply).

Who Will Be Included in the BOI Reporting?

The BOI reporting will require information of the parties who are beneficial owners and company applicants.

Beneficial owners are those individuals who own (directly or indirectly) or control at least 25% of the ownership interests of the reporting company, or those who exercise substantial control over the reporting company. Companies may have multiple beneficial owners to report. Substantial control includes those individuals who are senior officers, have the authority to appoint/remove officers/directors, important decision makers or those who have any other form of substantial control.

Company applicants are only reported for a) domestic companies that are created on or after January 1, 2024, and b) for foreign companies first registered to do business in the U.S. on or after January 1, 2024. The applicant is defined as the individual(s), no more than two, who directly files or is primarily responsible for filing the document that creates/registers the company.

When is the BOI Reporting Due?

The BOI reporting will go into effect on January 1, 2024. Companies created in 2024 will need to submit an initial BOI report within 90 days of the company’s creation date, while companies created after December 31, 2024, will only have 30 days from the creation date. Companies created prior to January 1, 2024, will need to submit an initial BOI report by January 1, 2025. Initial BOI reports for companies that were previously exempt, will be due 30 days after they no longer meet the exemption criteria.

Once submitted, if there are any errors or updates, changes must be made within 30 days.

What are the BOI Reporting Penalties?

If the company willfully fails to report complete or updated beneficial information or attempts to provide false or fraudulent beneficial ownership information, FinCEN will determine an appropriate enforcement response. Such failures may result in civil penalties of up to $500 per day the violation continues or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers may also be held accountable for the failure.

If the company makes a voluntary correction within 90 days of the original reporting deadline, there is a penalty safe harbor.

Conclusion and Next Steps

The Corporate Transparency Act will allow further preventive measures to be made against taking advantage of the U.S. financial system. By companies submitting BOI reporting on beneficial owners and company applicants, FinCEN will be better equipped to combat or limit money laundering and illicit financial activity within and between companies.

Companies should start taking steps to determine when their filing deadline is, who the company beneficial owners and company applicants are, and how to start gathering the required information. For new companies set up in 2024, there will be a 90-day period to accumulate relevant information and file an initial BOI report.

Subscribe here to be updated on our next article covering the BOI reporting, coming soon. Do you have questions in the meantime? Send us an email to ask! While Clark Nuber will not be offering advisory or filing services the BOI, we would be happy to discuss the basics of BOI reporting with you further.

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