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Beneficial Ownership Reporting – Coming Soon

Edited November 29th: FinCEN announced today that the 30-day registration period referenced in the last paragraph of this post was changed to 90 calendar days for reporting companies registered in 2024.

The Financial Crimes Enforcement Network (FinCEN) has a new beneficial ownership information (BOI) reporting requirement for certain U.S. legal entities and foreign entities registered to do business in the U.S., as well as their owners and operators.  The new rules are scheduled to go into effect on January 1, 2024, and failure to report the requisite information may result in civil penalties of $500 per day (up to $10,000) or criminal penalties of up to 2 years in prison. The new FinCEN BOI reporting requirements are designed to deter money laundering, tax evasion and other illegal activities and were promulgated pursuant to the Corporate Transparency Act which was enacted by Congress as part of the Anti-Money Laundering Act of 2020.  

The BOI reporting requirements have a very broad impact in requiring millions of companies to report who either owns, controls or has substantial control over the company as well as the company’s applicants, which includes lawyers, accountants or other third-party professionals. As of the date of this blog, FinCEN had yet to publish the final version of the report, which will be electronic and available through the FinCEN website.

Who is Required to Report?

The terms domestic reporting entity and foreign reporting entity are defined broadly but do include exemptions. A domestic reporting company is defined as a corporation, limited liability company or any other entity created by filing with the secretary of state or similar state law or Indian tribe. A foreign reporting company is defined as a corporation, limited liability company or other entity formed under the laws of a foreign country and is registered to do business in any state or a Tribal jurisdiction.

Even though the definitions of entities subject to the BOI reporting requirements are very broad, the rule does provide for 23 entity type exemptions. There is an exemption for “large operating companies” that have (i) at least 20 FTEs in the U.S., (ii) more than $5mm in gross sales or receipts in the U.S.; and (iii) has an operating presence at a U.S. physical office. There are also exemptions for certain types of entities listed below that meet specific requirements:

  • Publicly traded companies
  • Banks
  • Broker-dealers registered with the SEC
  • Insurance companies
  • Public accounting firms
  • Pooled investment vehicles
  • Investment companies
  • Tax-exempt entities
  • Inactive entities
  • An entity whose ownership is controlled by an exempt entity

Who is a Beneficial Owner?

The rule defines a beneficial owner as an individual who, directly or indirectly, either exercises “substantial control” over such entity or owns or controls at least 25% of the entity. An individual exercises substantial control over an entity if they are a senior officer or have the authority to remove a senior officer or the majority of its board of directors, have “substantial influence” over important decisions or any other form of substantial control over the entity.   The rule does provide for certain nominal exemptions to the definition of beneficial owner such as under age children and creditor.

When to File the BOI?

If an entity was created or registered prior to the rule’s effective date of January 1, 2024, such entity will have until January 1, 2025, to file its BOI with FinCEN. Entities created or registered on or after January 1, 2024, are currently required to file their BOI within 30 days; however, FinCEN has proposed extending this to 90 days from date of from date of creation or registration, as applicable. Additionally, entities created or registered on or after January 1, 2023, must also file information about their “company applicant,” which is defined as the individual who directly files the forms to create or register the entity as well as the individual primarily responsible for directing or controlling such filing.,

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