Understanding the Beneficial Ownership Information Reporting Requirements

In 2021, the US Government enacted the Corporate Transparency Act, which was designed to combat the use of shell companies and other corporate structures for illegal activities such as money laundering and terrorism financing. This law requires many companies to report who owns an interest in their company.

The bottom line, the US Government wants to check each company in the US is owned by a legitimate person, to avoid any company being used for fraudulent or criminal activity.

Beneficial Ownership Defined

A beneficial owner is any person involved in a company who either directly or indirectly:

• Exercises substantial control over the reporting company, or
• Owns or controls at least 25% of the ownership interests of the reporting company.

You could be in both camps. For example, a company can have two people who exercise substantial control over the company as well as three owners with at least 25% of the ownership.  You must report everyone who is considered a beneficial owner based on the FinCEN definition, no matter how many people that is.

Substantial control over a company refers to someone who meets any of the following four criteria:

1. Are a senior officer of the company (such as a CEO, CFO).
2. Have the authority to appoint or remove certain officers or a majority of directors of the company.
3. Are an important decision-maker in the company.
4. Wield any other form of substantial control of the company.

There are some exceptions to the beneficial ownership definition, including minor children, individuals acting on behalf of an actual beneficiary, employees, inheritors with only a future interest in the company through inheritance, and creditors of the company.

In the main, most US companies will need to report who owns and/or runs the company.

Implementation

As of January 1, 2024, business owners of certain types of companies will need to report beneficial ownership information to FinCEN (the Financial Crimes Enforcement Network). According to FinCEN, federal, state, local, and Tribal officials and certain foreign officials will be able to access beneficial ownership organization for activities related to national security, intelligence, and law enforcement. In certain circumstances, financial institutions will also have access to reports.

Reporting Requirements

Companies that are required to report their beneficial ownership information are called ‘reporting companies’. The two types of reporting companies are:

• Domestic companies such as limited liability companies and any other business entities created by filing a document with a secretary of state or any similar office in the United States.
• Foreign reporting companies, which are entities formed in a foreign country that are registered to do business in the US.

There are 23 types of exempt companies who do not need to report. These include banks, credit unions, insurance companies, public utilities, and inactive companies. Understanding the exemptions is important so you know whether your company is exempt or not. Typically, you can ask yourself three questions to determine if your US company is a reporting company:

• Is my company a corporation?
• Is my company a limited liability company?
• Was my company created by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe?

If you answered no to all three questions, your company is not a reporting company. If you answered yes to any of the questions, your company may be a reporting company. You can then check the list of exempt company types to see if your company type is exempt.

Reporting Deadlines

The deadlines for reporting beneficial ownership are:

• Any reporting company created or registered to do business prior to January 1, 2024 will have until January 1, 2025 to file its initial report.
• Any company created or registered on or after January 1, 2024 will have 30 days from the date the company receives actual or public notice that its creation or registration is effective.

There is no fee for companies submitting their beneficial ownership information report to FinCEN, but failure to provide complete and accurate information can result in criminal or civil penalties, including fines of up to $10,000 and up to two years in prison. Senior officers of any company that fail to file a proper beneficial ownership information report may held responsible.

How to File

The vast majority of companies must file their BOI report online. If a reporting company is unable to electronically file their BOI report, they should contact FinCEN to make other arrangements.

What to Include

The company must report its full legal name and any trade names, US address, jurisdiction of formation, and IRS Taxpayer Identification Number. It must also report each beneficial owner and company applicant’s full legal name, date of birth, current address, unique identifying number along with issuing jurisdiction, and image of a non-expired government ID.

Reporting companies must also file an updated BOI report within 30 days of any changes to the above information. For example, if an individual listed in the ownership report moves, the new address must be updated with FinCEN within 30 days.

Learn more about the Beneficial Ownership Information requirements and find information about the form you must fill out on FinCEN’s Beneficial Ownership Information webpage.

Next Steps

Determine whether you are a reporting company under FinCEN’s definition and whether your company fits the list of exemptions. If you are a non-exempt reporting company, you must file your Beneficial Ownership Information report. Read FinCEN’s Small Entity Compliance Guide for more information on the BOI requirements.