On January 1, 2024 a new reporting requirement goes into effect that will require millions of small businesses to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
Congress imposed this requirement in a statute called the Corporate Transparency Act (CTA), with FinCEN issuing the regulation providing the details on who must file a report, when it has to be filed, and what information has to be reported. Every small business owner needs to know about this new reporting requirement as non-compliance can result in severe penalties. This article addresses some of the main questions small business owners have been asking about BOI reporting.
What is the purpose of the Corporate Transparency Act?
The CTA is mainly an anti-money laundering law. In it, Congress states that bad actors seek to conceal their ownership of corporations, LLCs, or similar entities in the United States to facilitate money laundering, financing of terrorism, tax fraud, and other illegal acts. And according to Congress, federal legislation providing for the collection of beneficial ownership information is needed to protect national interests and better enable efforts to counter those illegal acts.
Who has to file a BOI report?
Every corporation, LLC, or other entity created by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe is required to file a BOI report unless it qualifies for an exemption. Those entities created in the United States and not exempt, and therefore required to file a BOI report, are called “domestic reporting companies”. (Certain entities created in foreign countries and registered to do business in the United States are also required to file a BOI report and are called “foreign reporting companies.”)
Who is exempt from filing a BOI report?
There are 23 categories of entities that are exempt. Most exemptions are for entities that are already subject to substantial federal or state regulation. Exempt entities include, for example, publicly traded companies and other entities that file reports with the SEC, banks, credit unions, money services businesses, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, and accounting firms.
There is also an exemption for what’s called a “large operating company”. A “large operating company” is an entity that (1) employs more than 20 full-time employees in the United States, (2) has an operating presence at a physical office within the United States, and (3) has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales.
What kind of information has to be reported by domestic reporting companies?
A domestic reporting company created before January 1, 2024 has to provide information about the company and about its beneficial owners. A domestic reporting company created on or after January 1, 2024 has to provide information about the company, its beneficial owners, and its company applicants.
What information about the company has to be reported?
The report must set forth the reporting company’s (1) full legal name, (2) any trade or “doing business as” names, (3) complete current street address of the principal place of business, (4) jurisdiction of formation, and (5) taxpayer identification number.
What information has to be reported for each of the beneficial owners and applicants?
The report must set forth their (1) full legal name, (2) date of birth, (3) complete current residential street address (except in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, who has to provide the street address of the business), (4) unique identifying number and the issuing jurisdiction from either a current (i) U.S. passport, (ii) state or local ID document, (iii) driver’s license, or (iv) if the individual has none of those, a foreign passport, and (5) an image of the document from which the unique identifying number was obtained.
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 percent of its ownership interests.
Who is a “company applicant”?
A company applicant is the individual who directly files the document that creates the domestic reporting company and the individual who is primarily responsible for directing or controlling the filing if more than one individual is involved in the filing of the document.