Last Updated on January 29, 2024 by Anda Malescu
The article discusses everything you need to know about the FinCEN beneficial ownership reporting, including who must file a beneficial ownership information report, what information you need to report and when is the report due.
The FinCEN beneficial ownership reporting requirement goes into effect on January 1, 2024, and requires certain types of companies created or registered to do business in the United States to report information about the company, the beneficial owners of the company and company applicants to the U.S. Financial Crimes Enforcement Network (FinCEN), an agency of U.S. Department of Treasury.
Overview of FinCEN beneficial ownership reporting:
- Who must report beneficial ownership?
- Who is exempt from BOI reporting?
- What information you need to report?
- Who is a beneficial owner?
- Who is a company applicant?
- When is the BOI report due?
- How to report?
- Penalties
1. Who must report beneficial ownership?
There are two types of companies that must report beneficial ownership to FinCEN:
- Domestic company. A domestic reporting company is a US corporation, limited liability company, or any other entity created by filing of a document with the secretary of state or similar office under the law of a US state or Indian tribe.
- Foreign company registered to do business in the United States. A foreign reporting company is a corporation, limited liability company, or other entity formed in a foreign country and that is registered to do business in any US state or tribal jurisdiction.
Please note that the definition of a reporting company generally includes all limited liability partnerships (LLPs), limited liability limited partnerships (LLLPs), business trusts, and most limited partnerships (LPs), in addition to corporations and LLCs.
The BOI reporting requirement is designed to collect information on as many businesses as possible and most small and medium size US corporations, LLCs and other entities should expect to be required to file BOI reports with FinCEN.
However, trusts, partnerships and sole proprietorships are generally excluded from FinCEN beneficial ownership reporting requirement to the extent that such entities are not created by filing a document with a state’s secretary of state or similar office.
Typically, to form a partnership or sole proprietorship, states do not require a filing with the secretary of state or similar office, but this differs from state to state.
If your state requires a document to be filed with the secretary of state or similar office to create the sole proprietorship or partnership, then you are required to report beneficial ownership information to FinCEN.
In determining whether a company is required to comply with the beneficial ownership reporting requirement and submit a BOI report, the key issue is whether the company had to file a document with the secretary of state or other similar office to create the company.
If the company had to file a document with the state government to be created, then it must file a BOI report. If no document was required to create the company, then a BOI report is not required. The same applies to foreign companies registered to do business in the United States.
2. Who is exempt from BOI reporting?
Even if a company meets the criteria for domestic or foreign reporting company, a company is not required to comply with the beneficial ownership reporting requirement if it falls under one of the 23 types of exempt entities.
The companies exempt from FinCEN BOI reporting are:
- SEC reporting securities issuer
- Domestic governmental authority,
- Bank
- Domestic credit union
- Depository institution holding company
- Money transmitting business
- Brokers or dealers in securities
- Securities exchange or clearing agencies,
- Other entities registered pursuant to the Securities Exchange Act of 1934 entities,
- Registered investment companies and investment advisers,
- Venture capital fund advisers
- Insurance companies
- State licensed insurance producers,
- Entities registered pursuant to the Commodity Exchange Act
- Accounting firms
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax exempt entities
- Entities assisting tax exempt entities
- Large operating companies
- Subsidiaries of certain exempt entities
- Inactive businesses
Please note that companies exempt from BOI reporting are mostly in the business of banking or investment and there is no exemption for companies engaged in real estate holding.
Companies formed for the purpose of purchasing and owning real estate are subject to FinCEN beneficial ownership reporting requirement and must file a BOI report, unless they fit in one of the exceptions.
Large companies and inactive businesses are also exempt from FinCEN beneficial ownership information reporting and therefore are not required to file BOI reports.
To qualify as a large company, a company must:
- Employ more than 20 full-time employees in the US
- Have more than $ 5 million gross revenue on most recent IRS tax return, and
- Operate from a physical office location in the US
For the purpose of FinCEN BOI reporting, an inactive business is a company that:
- Was in existence on or before January 1, 2020
- Is not engaged in any active business
- Is not owned, directly or indirectly, wholly or partially, by a foreign person
- Has not changed its ownership in the past 12 months
- Has not sent and or received more than $1,000 in the past 12 months, and
- Does not hold any type of assets in the US or abroad
3. What information must be reported?
Companies must report three types of information to comply with FinCEN BOI reporting requirement:
- Company Information
- Beneficial Owner Information
- Company Applicant Information
Company information. A reporting company must report the following company information to FinCEN:
- Legal name and any trade name or DBA
- Street address of principal place of business
- Jurisdiction of formation, and
- Taxpayer identification number (SSN, EIN, ITIN) or foreign tax identification number
Beneficial owner and company applicant information. The BOI report must include the following information about each beneficial owner and company applicant:
- Full legal name
- Date of birth
- Residential address (business address in limited circumstances for company applicants)
- Identification number shown on, and image of, any of the following:
- Valid US passport
- Valid state-issued driver’s license
- Valid state, local or tribal ID
- Valid foreign passport
As an alternative, beneficial owners and company applicants can provide the four pieces of information required to FinCEN directly and the individuals can obtain a “FinCEN identifier.” The FinCEN identifier can then be provided on a BOI report in lieu of the required information about the individual.
4. Who is a beneficial owner?
For the purposes of BOI reporting, a beneficial owner is an individual who directly or indirectly:
- Exercises substantial control over a company, or
- Owns or controls at least 25% of a company’s ownership interest
Under the FinCEN BOI reporting requirements, an individual has substantial control over a company sufficient to be a beneficial owner, if the individual:
- Is or exercises the authority of a senior officer, such as the company’s chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO), and general counsel, but not individuals performing ministerial tasks, such as a treasurer or executive secretary;
- Has the authority to appoint or remove senior officers or a majority of the directors or managers;
- Directs, determines, or has substantial influence over important decisions, such as major expenditures or investments, reorganization, dissolution or merger of the company; or
- Otherwise has direct or indirect substantial control over the company
Please note that the person who exercises substantial control and the person who owns or controls at least 25% of a reporting company can be the same person, but does not necessarily have to be the same individual. If they are different individuals, then the company must report all persons for its BOI reporting.
There are 5 types of individuals who are exempt from the definition of beneficial owner:
- Minor children. Minor children are not beneficial owners if the company reports the required information for a parent or legal guardian of the minor child.
- Nominees.An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual is exempt from BOI reporting requirements.
- Employees are not considered beneficial owners for purposes of BOI reporting if they are acting solely as an employee.
- Inheritors.Individuals who have a future interest in a company associated with a right of inheritance are not beneficial owners as long as they do not have a present ownership or control acquired through inheritance.
- Creditors. Creditors of a reporting company are not beneficial owners as long as the debt is not convertible to any form of ownership interest in the company.
5. Who is a company applicant?
In addition to beneficial owners, companies must report company applicants on BOI reports. Note however, that companies formed before January 1, 2024 are not required to report company applicants or update information regarding company applicants.
For purposes of FinCEN BOI reporting, a company applicant is:
- The individual who directly files the document that creates or registers the reporting company, or
- The individual who is primarily responsible for directing or controlling the filing of the document that creates or registers the company if more than one person is involved.
Each company required to file BOI reports can have a maximum of 2 company applicants.
If more than one person is involved in the formation of a company, then both individuals must be reported. If only one person is involves in the creation of a company, then that person should be reported as company applicant.
6. When is the BOI report due?
All reporting companies can file BOI reports starting on January 1, 2024.
The initial BOI report is due
- Between January 1, 2024 and January 1, 2025 for companies created or registered before January 1, 2024.
- Within 90 calendar days of actual or public notice that the company was created for companies formed on or after January 1, 2024 and before January 1, 2025.
- Within 30 calendar days of actual or public notice that the company was created for companies formed on or after January 1, 2025.
Updated BOI reports are due within 30 calendar days after a change pertaining to required information occurs. Updated BOI reports are also available starting January 1, 2024.
Corrected BOI reports are due within 30 calendar days after the company becomes aware or has reason to know of an inaccuracy on its prior BOI reports.
7. How to report?
The company’s beneficial ownership information can be reported electronically through attorneys, third party filing services, and the Beneficial Ownership Secure System (BOSS), a filing system available via FinCEN. The system is developed to receive, store and maintain BOI. All BOI reports submitted are exempt from search and disclosure under the Freedom of Information Act.
8. Penalties
Companies that fail to comply with the FinCEN’s beneficial ownership information reporting may be subject to civil and criminal penalties, including civil penalties of up to $500 per day and criminal penalties of up to $10,000 and/or imprisonment for up to two years.
Malescu Law can assist
The BOI reporting is a significant new compliance obligation for businesses. Companies that are required to report beneficial ownership should carefully review FinCEN’s regulations to ensure that they comply with the requirement.
If you have questions about the new beneficial ownership reporting to FinCEN, how it will affect your company or you want to make necessary preparations, please contact our business attorneys in Miami, Florida USA or schedule a consultation.
Malescu Law P.A. – Business & Immigration Lawyers
