Starting in 2024, many small businesses will be required to report information about their beneficial owners—the individuals who ultimately own or control a company—to FinCEN (Financial Crimes Enforcement Network). The new reporting requirement is an effort to help prevent money laundering and other financial crimes by requiring individuals with control over legal entities to provide personal identifying information.
The Reporting Rule issued on September 30, 2022, implements Section 6403 of the Corporate Transparency Act. The rule describes who must file Beneficial Ownership Information (BOI) reports, what information they must provide, and when they must file the reports.
Reports will contain information about the entity itself and two categories of individuals:
- Beneficial Owners – individual who owns or controls at least 25 percent of a company or has substantial control over the company.
- Company applicants – an individual who directly files or is primarily responsible for the filing of the document that creates or registers the company.
When do I need to file a report?
- Reports will be accepted starting on January 1, 2024.
- Reporting companies created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial BOI reports.
- Reporting companies created or registered on or after January 1, 2024, will have 90 days after receiving notice of their company’s creation or registration to file their initial BOI reports.
The reporting rules require that all “reporting companies” file BOI reports with FinCEN within the specified timeframes. A reporting company is any entity that meets the “reporting company” definition and does not qualify for an exemption.
Most domestic corporations (C or S Corporations) and limited liability companies (LLCs) will qualify as reporting companies.
Once you determine whether your entity qualifies as a reporting company, you’ll need to determine whether your entity meets any of the 23 exemptions from filing. An entity that qualifies for any of the exemptions is not required to submit BOI reports to FinCEN.
The most common exemption will likely be exemption number 21 which describes entities that employ more than 20 full-time employees in the U.S. with gross revenue over $5 million and a physical office in the U.S. Certain types of inactive entities that were in existence on or before January 1, 2020, are also exempt. Most small corporations and LLCs will probably not qualify for an exemption.
A list of all the exemptions and specific requirements for each can be found on the FinCEN FAQ page as well as in the Small Entity Compliance Guide published by FinCEN.
If you determine that your entity has a filing requirement, the next step is to identify its beneficial owners. A beneficial owner is any individual who, directly or indirectly:
- Exercises substantial control over a reporting company;
- OR
- Owns or controls at least 25 percent of the ownership interests of a reporting company.
Only certain reporting companies must include information about their company applicants in their BOI reports. In general, it appears that entities created on or after January 1st, 2024 will have to report their company applicant to FinCEN. A company applicant is the individual who directly filed the document that created the entity and/or the individual responsible for directing or controlling the filing of the creation document. There can be up to two company applicants listed on the report.
Your company’s BOI report will be filed with FinCEN. It will be submitted electronically through a filing system that will be located on FinCEN’s website. There is no fee for filing the report. Note that this is a federal filing. There is no state filing involved.
The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
This new reporting requirement will have a significant impact on many small businesses. Once the initial reports are filed, it will be necessary to monitor and file updates when ownership changes occur. Now is the time to begin to review the filing requirements for any entities you are involved with and to designate who will be responsible for gathering the required information.