Alert

Corporate Transparency Act Reporting Begins: Are You Ready?

January 2, 2024

Reporting Beneficial Ownership Information

Effective January 1, 2024, companies must disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) within the United States Department of Treasury. The reporting requirement is part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.

When a company needs to disclose its beneficial ownership information depends on when the company was created.

• One-year rule. Companies created before January 1, 2024. A company created or registered to do business before January 1, 2024 will have until January 1, 2025, to file its initial beneficial ownership information (BOI) report.
• 90-day rule. Companies created on or after January 1, 2024. A company created on or after January 1, 2024 will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report.
• 30-day rule. Companies created on or after January 1, 2025. A company created on or after January 1, 2025 will have 30 calendar days to file its initial BOI report.

The time period for filing the initial BOI report runs from the time the company receives actual notice of its creation, that its registration is effective, or after the secretary of state or similar official provides public notice of its creation or registration, whichever is earlier.

BOI reports will be filed electronically through a secure filing system via FinCEN’s website: File the Beneficial Ownership Information Report (BOIR).

A company can authorize anyone to file a BOI report, such as an employee, owner, or third-party service provider.

BOI reports are confidential and only to be used for law enforcement/FinCEN purposes. There are severe penalties for unauthorized disclosures or misuse of this confidential information.

Click below to jump to one of the following sections:

• Who must file a BOI report?
• Who is a beneficial owner?
• Who is a company applicant?
• When must a company applicant be reported?
• What is a FinCEN identifier and why obtain one?
• Penalties
• Further Guidance

Who must file a BOI report?

Companies required to report are called reporting companies. There are two types of reporting companies:

• Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
• Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Not all companies are required to file BOI reports. Twenty-three (23) types of entities are exempt from reporting. These entities include publicly traded companies meeting specific requirements, many nonprofit organizations, companies that have certain reporting obligations to governmental entities (e.g., insurance companies, banks, federal or state credit unions, investment companies, registered public accounting firms, and public utilities), and certain large companies. For a list and description of the 23 exempt entities, see FinCEN’s Small Entity Compliance Guide.

One category of exempt entities for which many companies will qualify is the large operating company. A company qualifies for this exemption if it meets all six of the following criteria:

1. The entity employs more than 20 full-time employees.
2. More than 20 full-time employees of the entity are employed in the United States.
3. The entity has an operating presence at a physical office within the United States.
4. The entity filed a federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.
5. The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form.
6. When gross receipts or sales from sources outside the United States, as determined under federal income tax principle, are excluded from the entity’s amount of gross receipts or sales, the amount remains greater than $5,000,000.

Update to initial BOI report. In addition to filing an initial BOI report, reporting companies must also update and correct information in their previously filed BOI reports no later than 30 days after the date of the change. As discussed below, individuals and reporting companies that obtain FinCEN identifiers must also update and correct information previously reported to FinCEN.

Changes that would require an updated BOI report would include the following:

• Any change to the information reported for the reporting company, such as registering a new doing business as (DBA). A reporting company may have more than one DBA if it is registered in multiple states.
• A change in beneficial owners, such as a new Chief Executive Officer, a sale that changes who meets the ownership interest threshold of 25 percent, or the death of a beneficial owner.
  • When a beneficial owner dies, resulting in changes to the reporting company’s beneficial owners, report those changes within 30 days of when the deceased beneficial owner’s estate is settled. The updated report should, to the extent appropriate, identify any new beneficial owners.
• Any change to a beneficial owner’s name, address, or unique identifying number provided in a BOI report.
  • If a beneficial owner obtained a new driver’s license or other identifying document that includes the changed name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.
• Minor children do not need to be reported as beneficial owners; however, when a beneficial owner that was a minor child reaches the age of majority, an updated BOI report must be reported identifying the individual as a beneficial owner and, if warranted, replacing their parent or legal guardian’s information with their own.

Like initial BOI reports, updated BOI reports should be filed electronically through the secure filing system.

There is no requirement to report a company’s termination or dissolution.

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Who is a beneficial owner?

A beneficial owner is any individual who, directly or indirectly:

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

Ownership interests. The following are examples of an ownership interest: 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.

Substantial control. An individual exercises substantial control over a reporting company if the individual meets any of four general criteria:

1. The individual is a senior officer.
2. The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company.
3. The individual is an important decision-maker.
4. The individual has any other form of substantial control over the reporting company.

A reporting company can have multiple beneficial owners. For example, a reporting company could have one beneficial owner who exercises substantial control over the reporting company, and a few other beneficial owners who own or control at least 25% of the ownership interests of the reporting company. A reporting company could have one beneficial owner who both exercises substantial control and owns or controls at least 25% of the ownership interests of the reporting company. There is no maximum number of beneficial owners who must be reported.

FinCEN expects that every reporting company will be substantially controlled by one or more individuals, and, therefore, that every reporting company will be able to identify and report at least one beneficial owner to FinCEN.

Exceptions to the definition of beneficial owner. There are five exceptions to the definition of beneficial owner. When an individual who would otherwise be a beneficial owner of a reporting company qualifies for an exception, the reporting company does not have to report that individual as a beneficial owner in its BOI report to FinCEN. The exceptions are:

1. Minor Child
2. Nominee, intermediary, custodian, or agent
3. Employee who is not a senior officer
4. Inheritor
5. Creditor

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Who is a company applicant?

Company applicant. There are two categories of company applicant: the direct filer and the person who directs or controls the filing action. Company applicants must be individuals.

• Direct filer. This is the individual who directly filed the document that created a domestic reporting company, or the individual who directly filed the document that first registered a foreign reporting company. This individual would have actually physically or electronically filed the document with the secretary of state or similar office.
• Directs or controls the filing action. This is the individual who was primarily responsible for directing or controlling the filing of the creation or first registration document. This individual is a company applicant even though the individual did not actually file the document with the secretary of state or similar office.

The following example illustrates who is a company applicant:

• Facts: Individual A is creating a company. Individual A prepares the necessary documents to create the company and directs Individual B to file the documents with the relevant State or Tribal office. Individual B then directly files the documents that create the company.
• Analysis: Individuals A and B are both company applicants – Individual B directly filed the documents, and Individual A was primarily responsible for directing or controlling the filing. Individual B could, for example, be Individual A’s spouse, business partner, attorney, or accountant; in all cases, Individuals A and B are both company applicants in this scenario.

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When must a company applicant be reported?

Not all reporting companies are required to report their company applicants to FinCEN.

A reporting company is required to report its company applicants if it is either a:

• domestic reporting company created on or after January 1, 2024; or
• foreign reporting company first registered to do business in the United States on or after January 1, 2024.

A reporting company is not required to report its company applicants if it is either a:

• domestic reporting company created before January 1, 2024; or
• foreign reporting company first registered to do business in the United States before January 1, 2024.

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What is a FinCEN identifier and why obtain one?

A FinCEN identifier is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN.

A FinCEN identifier is not required, but may be advisable. Once a beneficial owner or company applicant has obtained a FinCEN identifier, reporting companies may report it in place of the otherwise required four pieces of personal information. The four pieces of personal information are:

1. Full legal name
2. Date of birth
3. Complete current address
4. Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
   a. U.S. passport
   b. State driver’s license
   c. Identification document issued by a state, local government, or tribe
   d. If an individual does not have any of the previous documents, a foreign passport

FinCEN identifier for individuals. On or after January 1, 2024, individuals may electronically apply for FinCEN identifiers. In the application, an individual must provide the same four pieces of personal information and image that reporting companies submit about beneficial owners and company applicants in BOI reports. After an individual submits an application, the individual will immediately receive a FinCEN identifier unique to that individual.

• Update FinCEN identifier information. Individuals must report any change to the information they submitted to obtain a FinCEN identifier no later than 30 days after the date on which the change occurred.
• If there is any inaccuracy in this information, an individual must correct the information no later than 30 days after the date the individual became aware of the inaccuracy or had reason to know of it.

FinCEN identifier for reporting companies. A reporting company may request a FinCEN identifier when it submits a BOI report by checking a box on the reporting form.

• Update FinCEN identifier information. Reporting companies with a FinCEN identifier must update or correct the company’s information by filing an updated or corrected beneficial ownership information report, as appropriate.

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Penalties

Failing to comply with the reporting requirements can result in penalties for the reporting company, senior officers of the reporting company, and beneficial owners.

Self-correcting measures. If a person has reason to believe that a report filed with FinCEN contains inaccurate information and voluntarily submits a report correcting the information within 90 days of the deadline for the original report, then the Corporate Transparency Act creates a safe harbor from penalty.

Willful failure. The willful failure to report complete or updated BOI to FinCEN, or the willful provision of or attempt to provide false or fraudulent BOI, may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fail to file a required BOI report may be held accountable for that failure.

Providing false or fraudulent BOI could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document. Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.

For example, an individual who qualifies as a beneficial owner or a company applicant might refuse to provide information, knowing that a company would not be able to provide complete BOI to FinCEN without it. Also, an individual might provide false information to a company, knowing that information is meant to be reported to FinCEN.

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Parsing through the Corporate Transparency Act rules is a significant undertaking. McGlinchey attorneys have been following the Corporate Transparency Act since its enactment. See What Does the Corporate Transparency Act Mean for Businesses and Incorporators? and What Will the Corporate Transparency Act Mean for Your Business?

Our attorneys are prepared to assist companies in (1) determining whether they are a reporting company, (2) determining who is a beneficial owner, and (3) complying with the BOI reporting requirements. While some companies will not need to report until 2025, other companies may need to report as soon as the first quarter in 2024.

The time is now for every company to determine its reporting obligations.

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Further Guidance

This overview of the BOI reporting rules is not intended to be comprehensive. FinCEN has issued detailed regulations and other guidance that provide definitions and specific rules. The following is a list of FinCEN current resources:

Corporate Transparency Act

31 U.S.C. 5336 (Beneficial ownership information reporting requirements)

Beneficial Ownership Information Reporting Requirements Final Regulations (09/30/2022)

Beneficial Ownership Information Reporting Rule Fact Sheet

Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities Final Regulations (11/08/2023)

Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024 Final Regulations 11/30/2023)

Beneficial Ownership Information Access and Safeguards Final Regulations (12/22/2023)

Beneficial Ownership Information Access and Safeguards Final Rule Fact Sheet

FinCEN BOI Homepage

FinCEN Brochure “An Introduction to Beneficial Ownership Information Reporting”

FinCEN Short Introduction Video to BOI Information Reporting

FinCEN Information Video on BOI Information Reporting

FinCEN Small Entity Compliance Guide

BOI Information Reporting Frequently Asked Questions