The new Beneficial ownership (BOI) FINCEN reporting requirements for Businesses in January 2024

Posted November 28, 2023

As part of the Corporate Transparency Act (CTA), enacted in 2021, there are new reporting requirements for companies created or registered to do business in the United States. Starting on January 1, 2024, many U.S. businesses must provide information regarding the company and its beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Companies (other than those specifically exempted) must file a form with FinCEN (through an electronic portal) reporting data about beneficial owners. Failure to comply with the new requirements will result in $ 500-a-day civil and criminal penalties and potentially criminal charges.

What is the Corporate Transparency Act?

According to Thomson Reuters, The Corporate Transparency Act was enacted to enhance transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities. It is designed to capture more information about the ownership of specific entities operating in or accessing the U.S. market. Companies are looking for more information on the Corporate Transparency Act, how it affects their operations, and the details of reporting requirements.

A Baker Tilly article mentions that you contact your legal representative for assistance in complying with these BOI filings. Recently, FinCEN released a Small Entity Compliance Guide and new FAQs addressing reporting requirements. A recent Small Business Administration report shows over 27 million U.S. firms are “nonemployer” small businesses with no staff beyond the owners. The Corporate Transparency Act targets these smaller entities, seeking to enhance transparency of business activities through new beneficial ownership reporting.

Under the CTA, nonemployer firms and other small businesses must disclose details on individuals that meet beneficial ownership thresholds. This reporting covers owners with substantial control or 25%+ equity stakes. By mandating previously unspecified details on control parties, the CTA aims to peel back the corporate veil on smaller private companies.

Who needs to file?

All domestic and foreign entities formed or registered to do business in the United States must file the BOI report unless they meet one or more of the 23 filing exceptions. Domestic entities are any corporation, limited liability company, or other entity created by documents filed with a secretary of state or similar office under the laws of a U.S. state or Indian tribe. Foreign entities are those formed under the laws of a country outside the U.S. and registered to do business in any U.S. state or tribal jurisdiction.

Reporting companies typically include:

Limited liability partnerships
Limited liability limited partnerships
Business trusts
Most limited partnerships, where entities are generally created by a filing with a secretary of state or similar office.

Who are Beneficial Owners

A beneficial owner can fall into one of two categories defined as any individual who, directly or indirectly, either:

Exercises substantial control over a reporting company, or
Owns or controls at least 25% of the ownership interests of a reporting company.

The rules were created to close any loopholes and identify all owners.

The main point is that beneficial ownership is defined as those individuals with ownership interests reflected through capital and profit interests in the company. An article published by Eisner Amper, mentions that the FinCEN guidance defines ownership interests to include equity, stock, or voting rights; capital or profit interests; convertible instruments; options or privileges; and any other “mechanism used to establish ownership.”

Beneficial owners designated under CTA must file extensive personal details with FinCEN, including:

Full name
Date of birth
Address
ID number and image from valid government ID

Reporting companies must provide the following entity-related information about the company:

The full legal name of the company;
Any other trade names or “doing business as” used by the company;
The street address of the company’s principal place of business
IRS taxpayer identification number

Due dates

The BOI reporting requirements go into effect on Jan. 1, 2024. Filing due dates are as follows:

New companies (created/registered after Dec. 31, 2023) – within 90 days of formation. A recently released Notice of Proposed Rulemaking extends this deadline to 90 days from the original 30-day window solely for reporting entities created or registered in 2024.
There is no change to the rule that entities created or registered on or after Jan. 1, 2025 must file a BOI report within 30 days of formation.
Existing companies (created/registered before Jan. 1, 2024) – by Jan. 1, 2025
Companies with changes to previously reported information (i.e. ownership, address, etc.) – within 30 days of change or discovery of inaccuracy

Failure to file penalties

The BOI reporting regime carries potential civil and criminal penalties:

Civil penalties for a violation are up to $500 per day or
Criminal penalties of up to 2 years of imprisonment and/or a fine of up to $10,000

Conclusion

The CTA marks a significant shift in mandating ownership transparency, with substantial non-compliance penalties signaling the rules carry considerable weight. The time to file these returns will come sooner than you think. We recommend contacting your legal representative as quickly as possible to ensure timely compliance.