New Beneficial Ownership Reporting E-Filing System
Starting Jan. 1, 2024, most companies created or registered to do business in the U.S. will need to report information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA), a federal anti-money laundering law which we highlighted in our last newsletter “What Every Small Business Needs to Know about the Corporate Transparency Act”.
Before January 2024, certain U.S. entities such as corporations and limited liability companies (LLCs) (collectively referred to as the reporting companies) were able to operate privately. Starting January 1, 2024, even a single-member LLC will be subject to compliance with the new rules. Additionally, any entity formed after January 1, 2024, will need to disclose beneficial ownership information of the individuals (e.g., attorneys, paralegals) who filed the document that creates or registers the reporting company or who directed or controlled such filing.
Who Has to File a BOI Report
FinCEN is now accepting beneficial ownership information reports (BOI) through their BOI E-Filing System at https://boiefiling.fincen.gov.
Every reporting company is required to file a BOI report unless it qualifies for an exemption. There are 23 types of entities that are exempt from the BOI reporting requirements. These include, among others, large operating companies, tax-exempt entities, accounting firms, and inactive entities. However, most small businesses will not qualify for one of these exemptions.
Who Is a Beneficial Owner
A beneficial owner is an individual who, directly or indirectly, either:
- exercises substantial control over the reporting company, or
- owns or controls at least 25% of its ownership interests.
Individuals who do not count as beneficial owners include a minor child, a nominee, intermediary, custodian, or agent of another individual, an employee acting solely as an employee, a holder of a future inheritance interest and a creditor of the reporting company.
The term “substantial control” is defined broadly and encompasses senior officers as well as all individuals who direct, determine, or have substantial influence over important decisions made by a reporting company through board representation, ownership or control of a majority of voting rights, or any other contract, arrangement, understanding, or relationship.
Reporting Deadlines
- The reporting company created or registered before January 1, 2024, will have until January 1, 2025, to report BOI.
- The reporting company created or registered on or after January 1, 2024, must report BOI within 90 days of receiving actual or public notice that its creation or registration is effective.
Beginning in 2025, the reporting window is 30 days after the entity’s receipt of actual or public notice that its creation or registration is effective.
Beneficial ownership information report is a one-time filing. Any updates or corrections to information previously filed with FinCEN must be submitted within 30 days following the date on which the change occurred, or 30 days after the company becomes aware or has a reason to know of an inaccuracy in a previously filed report. In any case, reporting companies must file corrected reports within 90 days of the date the inaccurate report was filed to avoid penalties. A change in the information of the company applicant does not require an updated report.
Privacy Concerns
Information to be reported includes the entity’s full name, the jurisdiction of formation, the business street address and the IRS tax identification number. Beneficial owner and company applicant details include name, birthdate, address, and a unique identifying number from an acceptable official document, together with a scanned photo of the ID used. The information is collected and stored on FinCEN’s Beneficial Ownership Secure System (“BOSS”), a secure registry which is not publicly accessible or subject to search and disclosure under the Freedom of Information Act of 1966. However, under certain conditions, FinCEN may disclose the information stored in BOSS to authorized government departments, tax authorities, law enforcement, and financial institutions.
Those business owners who are concerned about privacy or reluctant to disclose sensitive personal information for security reasons may consider choosing a different entity for their future activities. For example, sole proprietorships, trusts, and general partnerships are not created by filing with a state agency and operate according to common law principles and thus are not “reporting companies.”
An individual and the reporting company could also apply to FinCEN for a unique identifying number (FinCEN ID) after furnishing FinCEN with the required information. Going forward, they could use FinCEN ID in lieu of their personal information.
Action Steps
The Act places the responsibility of filing the BOI report on the reporting company, obligating the entity to obtain all necessary identifying information from its beneficial owners. Thus, all existing reporting companies should adopt an amendment to their current operating, shareholder, employment and other agreements to (1) address the entity’s obligations under the rule, (2) designate the individual responsible for ensuring compliance, (3) obligate its members/shareholder to provide their beneficial ownership information and any changes or updates to the same; and (4) establish internal systems and controls to collect, maintain and report such information in a safe and secure manner.
We are glad to provide you with assistance in the preparation of such amendments.
Compliance
Noncompliance with the above reporting obligations will subject the reporting companies and their senior officers to civil and criminal penalties ($500 a day up to $10,000 and up to two years imprisonment). A senior officer or a beneficial owner may be subject to penalties for willfully causing a company not to file a required report within the prescribed time.
Please keep in mind that FinCEN does not send unsolicited requests directly to the owners. Disregard any letters and emails that solicit you to pay a fee or click on a link or QR code to file the BOIR.
If you have questions about this alert or would like more information, please contact us at 703.952.2115 or info@accordlawpllc.com
