- Many businesses will have to comply with a new beneficial ownership information (BOI) reporting requirement as part of the federal government’s efforts to combat money laundering, drug trafficking, and other financial fraud.
- The upcoming reporting requirement affects corporations, limited liability companies, and other entities created in or registered to do business in the United States.
- It requires such organizations to file a statement of beneficial ownership with the Financial Crimes Enforcement Network (FinCEN) identifying the persons who ultimately own or control the company.
How should your company prepare for the new reporting rule?
Many businesses will soon have to comply with a new beneficial ownership information (BOI) reporting requirement as part of the federal government’s efforts to combat money laundering, drug trafficking, and other financial fraud.
Consider a high-level overview of the disclosure requirements, affected parties, and effective dates that can clarify your responsibilities and help your organization avoid potential penalties.
Who is affected by the new requirements?
The upcoming BOI reporting requirement affects corporations, limited liability companies, and other entities created in or registered to do business in the United States. It requires such organizations to file a statement of beneficial ownership with the Financial Crimes Enforcement Network (FinCEN) identifying the persons who ultimately own or control the company.
FinCEN issued its final rule implementing the BOI reporting requirements on September 29, 2022. They go into effect January 1, 2024.
What does a reporting company disclose in its BOI report?
A reporting company subject to BOI reporting must disclose the following:
- Name of reporting company
- Each beneficial owner must report their name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document)
- Similar information may be required for each company applicant
What is a reporting company?
There are two types of reporting companies, domestic and foreign.
- A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. Exemptions may apply, such as large operating companies with more than 20 full-time employees, that have filed federal tax returns in the previous year demonstrating more than $5 million in gross receipts, and have a physical office in the United States.
- A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. Exemptions may apply.
Who is considered a beneficial owner?
A beneficial owner is any individual who, directly or indirectly, either 1) exercises substantial control over a reporting company, or 2) owns or controls at least 25% of the ownership interests of a reporting company. Exemptions may apply.
Who is considered a company applicant?
A company applicant is any individual who either 1) directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States, or 2) is primarily responsible for directing or controlling the filing of the relevant document by another. Exemptions may apply.
When do reporting companies need to start filing BOI reports with FinCEN?
Reporting companies created or registered before January 1, 2024, must file initial BOI reports by January 1, 2025. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial BOI reports.
Are there penalties for failing to comply with BOI reporting rules?
Yes. Willful violations may result in a civil penalty of $500 per day and/or criminal penalties of up to $10,000 and/or two years in jail.
Will FinCEN provide additional BOI reporting guidance in the future?
Yes. Forthcoming FinCEN regulatory guidance will:
- Establish rules for who may access BOI, for what purposes, and what safeguards will exist.
- Revise FinCEN’s customer due diligence rule.
- Develop the infrastructure to administer these requirements (e.g., forms to file, data storage using the Beneficial Ownership Secure System (BOSS), etc.).
How we can help
CLA will issue future updates on BOI reporting rules once FinCEN provides further details on where, when, and how to file BOI reports. Please consult CLA with questions on whether you may be exempt from BOI reporting.