In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This law creates a new beneficial ownership information reporting requirement as 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.
What is beneficial ownership information?
Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company.
Who can access beneficial ownership information?
FinCEN published the rule that will govern access to and protection of beneficial ownership information on December 22, 2023. Beneficial ownership information reported to FinCEN will be stored in a secure, non-public database using rigorous information security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security level. FinCEN will work closely with those authorized to access beneficial ownership information to ensure that they understand their roles and responsibilities in using the reported information only for authorized purposes and handling in a way that protects its security and confidentiality.
KEY REPORTING DATES:
- FinCEN will begin accepting BOI reports on January 1, 2024
- New businesses that are formed on or after January 1, 2024, must file within 90 days of business formation
- Existing businesses that were formed before January 1, 2024, must file before January 1, 2025
Who Needs to File a BOI Report?
Most registered business entities meet FinCEN’s definition of a “reporting company.” Reporting companies can be either domestic or foreign.
- 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 with any similar office under the law of a state or Indian tribe.
- 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 under the law of a state or Indian tribe.
So, LLCs, C Corporations, S Corporations, and other types of corporations fit the definition. FinCEN doesn’t specifically mention them, but different entity types — such as Limited Partnerships, Limited Liability Partnerships, Limited Liability Limited Partnerships, and Business Trusts — might also be reporting companies.
Businesses, like Sole Proprietorships and General Partnerships, which do not register formation documents, do not have to file a beneficial ownership report.
Who is exempt from the reporting rule?
FinCEN has identified 23 exemption categories. If an entity is in one of those categories and meets its specific exemption criteria, it does not have to submit a beneficial ownership report. The exemptions are primarily for entities already under close regulation by the federal and state governments.
- Securities reporting issuer
- Governmental authority
- Banks
- Credit unions
- Depository institutions holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agencies
- Other Exchange Act registered entities
- Investment companies or investment advisers
- Venture capital fund advisers
- Insurance companies
- State-licensed insurance producers
- Commodity Exchange Act registered entities
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax-exempt entities
- Entity assisting a tax-exempt entities
- Large operating companies
- Subsidiary of certain exempt entities
- Inactive entities
- Public accounting firms registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212)
Simply falling into any of these categories does not automatically make a reporting company exempt. Each category has specific criteria that must be met to qualify for exemption. Refer to FinCEN’s Small Entity Compliance Guide for details.
When are beneficial ownership reports due?
FinCEN will begin accepting BOI reports on January 1, 2024. Deadlines depend on when a reporting company was created or registered.
- Reporting companies created or registered to do business before January 1, 2024 – Initial BOI report is due by January 1, 2025.
- Reporting companies created or registered on or after January 1, 2024 and before January 1, 2025 – Initial BOI report is due within 90 days of the entity’s formation.
- Reporting companies created or registered on or after January 1, 2025 – Initial BOI report is due within 30 days of the entity’s formation.
Who is a beneficial owner of a reporting company?
A reporting company’s beneficial owner is any individual who owns or controls 25% or more of the ownership interests of a reporting company or who directly or indirectly exercises substantial control over the entity.
Some types of individuals do not count as beneficial owners:
- An employee (not in a senior position) whose control or economic benefits from the reporting company are derived solely from their activities as an employee.
- An individual who has only a future ownership interest through a right of inheritance (once they inherit the interest, they must be reported)
- A custodian, nominee, intermediary, or agent of another individual who meets the beneficial owner definition
- A minor child (information about a parent or guardian must be reported instead)
- Creditors of the reporting company
What is considered an ownership interest?
Any individual who owns or controls at least 25% of the ownership interests in a reporting company is considered a beneficial owner.
An ownership interest may be any of the following:
- Equity
- Stock
- Capital or profit interest
- Voting rights
- Any instrument convertible into stock, equity, voting rights, or capital or profit interest
- Options or other non-binding privileges to buy or sell any of the interests mentioned above
- Any other contract, instrument, or mechanism to establish ownership
How can I get help with our BOI report?
Ultimately, reporting companies are responsible for filing their beneficial ownership information report and certifying the information is complete and correct. Any individual who files the BOI report as an agent of the reporting company certifies it on the entity’s behalf.
If you need help determining whether you must file a BOI report or identifying who must be reported as beneficial owners or company applicants, consider getting guidance from an accountant or attorney.
And if you don’t feel confident preparing and filing the report on your own, KYKY is here to act as your agent and file the report on your company’s behalf.
