Avoid steep penalties with timely & accurate FinCEN BOI Reporting

Financial Crimes Enforcement Network (FinCEN) issued a rule to implement beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). This rule aims to protect national security, prevent money laundering, and assist law enforcement to target illicit actors who use shell companies to conduct illegal activities in the United States.

Recent events, like Russia’s invasion of Ukraine, highlighted the need to combat the misuse of corporate entities for evading sanctions and other crimes. The rule specifies who should file a FinCEN Beneficial Ownership report, what information to include, and the reporting deadlines, seeking to minimize burdens on small businesses.

Beneficial ownership information on the (FinCen Beneficial Ownership) form refers to identifying information about the individuals who directly or indirectly own or control a company.

In general, a beneficial owner is any individual who:

1. directly or indirectly exercises “substantial control” over the reporting company, or
2. directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.

Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over important decisions the reporting company makes.

In addition, any senior officer is deemed to have substantial control over a reporting company. Other rights or responsibilities may also constitute substantial control. “Ownership interests” generally refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock.

A beneficial owner is now more clearly defined as someone like a senior officer (CEO, CFO), someone with authority to appoint or remove key officers, a significant decision-maker, or anyone with substantial control over the company.

Under FinCEN’s updated rule, reporting responsibilities are focused on corporations, LLCs, or entities formed by filing with the secretary of state or similar offices. This is a change from the previous rule, which included all corporations, LLCs, and partnerships.

Only a few U.S. states require companies to reveal who actually owns or controls them. This lack of transparency lets criminals and corrupt individuals hide their identities and launder money through shell companies, which isn’t fair to honest American businesses. It also makes it tough for law enforcement to track down and prosecute these criminals.

To tackle this issue, Congress passed the Corporate Transparency Act in 2021. Under this law, certain U.S. and foreign companies must report information about their owners to FinCEN, the Treasury Department’s Financial Crimes Enforcement Network. FinCEN’s job is to protect the U.S. financial system from illegal activities. By collecting and sharing this beneficial ownership information, FinCEN is making it more challenging for bad actors to hide their ill-gotten gains.

Certain companies — referred to as “reporting companies” — are required to report their beneficial ownership information to FinCEN. There are two types of reporting companies — domestic reporting companies and foreign reporting companies.

A domestic reporting company is defined as a corporation, a limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Native American tribe.

A foreign reporting company is any entity that is a corporation, limited liability company, or other entity formed under the law of a foreign country, AND registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Native American tribe.

If you had to file a document with a secretary of state to create your company, or to register it to do business if it is a foreign company, then your company is a reporting company, unless an exemption applies.

For each individual who is a beneficial owner or a company applicant, with direct or indirect interest of 25% or more, a reporting company will have to report:

-The individual’s name, date of birth, and address;
-A unique identifying number from an acceptable identification document; and
-The name of the state or jurisdiction that issued the identification document.
-Address: For a beneficial owner, the reporting company must report the residential street address.
-Identification Document from a government body or agency

In addition, the reporting company must submit an image of the identification document associated with the unique identifying number reported to FinCEN.

Yes. The information that needs to be reported, however, depends on when the company was created or registered.

– If a reporting company is created or registered on or after January 1, 2024, the reporting company will need to report information about itself, its beneficial owners, and its company applicants.
– If a reporting company was created or registered before January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners. The reporting company does not need to provide information about its company applicants.

Starting January 2024, exemptions include large operating companies, tax-exempt organizations like 501(c)(3) entities, and inactive companies meeting specific criteria, such as no recent ownership changes or minimal financial activities.

The individual responsible for the initial filing or registration of the company, such as an attorney or accountant, is identified as the ‘company applicant.’ This reporting is necessary for companies created in the U.S. on or after January 1, 2024.

The information will include the company name, address and tax ID number. The Beneficial Owner information that will be collected will include names, addresses, date of birth, an identification number from an official document such as a U.S. driver’s license or a passport and a copy of the identification document. More information can be found on the FinCEN website here.

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report. Beneficial ownership information reports will not be accepted before the start of 2024.

A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier. This means for 2024 and future years that the deadline will be a very early January 30th of each year, as the laws are written currently.