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Beneficial ownership information (“BOI”) reports will soon be required by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) by most U.S. corporations, limited liability companies, other entities formed by making a secretary of state or equivalent filing, and most foreign entities registered to do business in the United States. Each of these corporate entities must soon report to FinCEN as a “reporting company” unless an exemption applies. This requirement stems from the BOI reporting rule enacted by FinCEN under the federal Corporate Transparency Act, and is intended in part to assist FinCEN with preventing and combating money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.[1] The rule will become effective on January 1, 2024.

The BOI reporting rule was initially proposed by FinCEN in December 2021. For more information about the proposed rule, please refer to the post published on June 23, 2022. In September 2023, FinCEN adopted the rule largely as proposed with some modifications. FinCEN also released a Small Entity Compliance Guide and answers to Frequently Asked Questions about the rule. This article describes the requirements of the rule as adopted, the explanations of the rule provided in the FinCEN Small Entity Compliance Guide and Frequently Asked Questions, and a recent proposal to amend the rule.

Initial Filing Deadlines

Currently, the initial BOI report filing deadlines under the BOI reporting rule for most corporate entities are: (1) January 1, 2025 for entities created or registered to do business in the U.S. before January 1, 2024; and (2) 30 days after actual or official public notice of creation or registration for entities created or registered to do business in the U.S. on or after January 1, 2024.

Penalties for Non-Compliance

Under the BOI reporting rule as enacted, civil or criminal penalties may result from willfully providing, or attempting to provide, false or fraudulent BOI reports, or willful failure to file required BOI reports. Civil penalties may be up to $500 for each day that the violation continues, and criminal penalties including imprisonment may be up to two years and/or a fine of up to $10,000. Individuals subject to penalties include each non-compliant corporate entity’s senior officers, individuals who cause a reporting failure by refusing to provide required BOI, and individuals who provide false or incomplete information directly to FinCEN or to another person for purposes of the FinCEN report.

State and Limited Private Access to Beneficial Ownership Information Reports

FinCEN states that it will permit federal, state, local, and tribal officials, as well as certain foreign officials who submit a request through a U.S. federal government agency, to obtain beneficial ownership information from BOI reports filed under the BOI reporting rule for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.

FinCEN states that it is developing the rules that will govern access to and handling of beneficial ownership information. FinCEN states that 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 states that it will work closely with those authorized to access beneficial ownership information to ensure that they understand their roles and responsibilities to ensure that the reported information is used only for authorized purposes and handled in a way that protects its security and confidentiality.

The Required Beneficial Owner Information

The initial BOI report must provide every beneficial owner’s full legal name; date of birth; complete current address; government-issued identification number from a non-expired passport, driver’s license, or other acceptable government-issued identification document; the state or jurisdiction that issued the identification document; and an image of the government identification document, unless one of the special rules described below allows otherwise, or the individual has applied for and provided the reporting company with a FinCEN identifier as described below.

Special rules allow different information to be reported in lieu of the above as follows: (1) if an individual is a beneficial owner solely by virtue of ownership of one or more entities that are exempt from reporting company requirements, then only the exempt reporting companies’ names must be reported; (2) if a beneficial owner is a minor child, the individual’s parent or legal guardian’s information may be provided instead of the individual’s; and (3) if an entity meets a reporting exemption for certain foreign regulated or indirectly regulated investment companies, then only the information for the individual who has the greatest authority over the strategic management of the entity must be reported.

The reporting company may use a beneficial owner’s FinCEN identifier in the BOI report instead of the information above. An individual may apply for a FinCEN identifier by providing FinCEN with the identifying information and documentation that would otherwise be required in the initial BOI report for that individual as described above.

Identifying The Beneficial Owners Who Must Be Reported

A beneficial owner is defined as an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25 percent of the ownership interests of the reporting company. To “exercise substantial control” means: (1) being a senior officer, defined as a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or person performing similar functions; (2) having authority to appoint or remove a senior officer or a majority of the board of directors or similar body of the reporting company; (3) directing, determining or having substantial influence over important decisions over the reporting company’s business, finances, or structure; or (4) having any other form of substantial control over the reporting company, through contracts, arrangements, understandings, relationships, or otherwise. Since the control may be exercised either directly or indirectly, it includes both direct control, such as having board representation, and indirect control, such as through being a trustee of a controlling trust, controlling one or more intermediary entities that collectively exercise substantial control, or through arrangements or relationships with individuals acting as nominees.

To “own or control at least 25 percent of the ownership interests” of the reporting company is determined based on a number of definitions and calculations, summarized as follows:

1. To “own or control” means having any form of ownership or control, which may be indirect, such as through a trust or through ownership or control of one or more intermediary entities or arrangements or a relationship with an individual acting as a nominee, intermediary, custodian or agent; and shared, such as joint ownership with one or more other persons of an undivided interest in an ownership interest.
2. An “ownership interest” means any equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust; in each such case, without regard to whether any such instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights, company or profit interests; convertible instruments; options or privileges created by or with the knowledge or involvement of the reporting company; or any other instrument, contract, arrangement, understanding, relationship, or mechanism to establish ownership.
3. The ownership interest constitutes 25 percent or more of the total outstanding ownership interests of the reporting company, calculated, first, assuming that any options or similar instruments held by the individual are exercised, and second, either: (a) as a percentage of all outstanding capital and profit interests of the reporting company that issues such interests; (b) for a reporting company that issues shares of stock, the greater of (i) the total combined voting power of all classes of ownership interests of the individual as a percentage of the total outstanding voting power of all classes of ownership interests entitled to vote, and (ii) the total combined value of the ownership interests of the individual as a percentage of the total outstanding value of all classes of ownership interests; or (c) if neither (a) or (b) can be applied with reasonable certainty, then the percentage is of any class or type of ownership interest of the reporting company owned or controlled by an individual.

For example:

• In a single-member limited liability company, the sole member would be the only individual who would be reported as a beneficial owner assuming that the individual is the sole individual owning or controlling 25 percent of its capital or profits interests and sole senior officer and no other individual otherwise directly or indirectly exercises substantial control.
• In a corporation with three individual stockholders owning 50%, 40% and 10% of the outstanding stock, respectively, and a separate individual who is its president and owns none of its ownership interests, the beneficial owners would include the 50% stockholder and the 40% stockholder, due to their ownership interests, and the president, due to status as a senior officer. The 10% stockholder would not be a beneficial owner assuming that this individual is not a senior officer and does not otherwise directly or indirectly exercise any substantial control.
• In a limited liability company with two 50% members and a non-member manager, for similar reasons as those indicated in the example above, each of the members and the non-member manage would be reported as a beneficial owner.
• In a corporation with multiple indirect owners, where two individuals own 30% and 70% of a company that owns 50% of the corporation, and four individuals, including the 30% owner of the first company, each own 25% of an entity that owns 50% of the corporation, the 70% owner of the first 50% owner would indirectly own 35% of a corporation and therefore be a beneficial owner, and the individual owning 30% of the first 50% owner and 25% of the second 50% owner would indirectly own a combined 27.5% of the corporation and therefore be a beneficial owner. If any of these or other individuals is a senior officer or otherwise directly or indirectly exercises substantial control, they would also be reported as beneficial owners.

There are exceptions for certain individuals from beneficial ownership status. These are: (1) minor child status; (2) an individual merely acting as a nominee, intermediary, custodian, or agent on behalf of another individual, which may include a reporting company’s accountant or attorney, other than its general counsel, who is designated as the reporting company’s agent; (3) an employee who is not a senior officer and does not control or benefit from the reporting company other than through employment status; (4) an individual whose only interest in the reporting company is a future inheritance; and (5) a creditor, so long as this entitlement is the only ownership interest that the individual has in the reporting company.

Additional Beneficial Ownership Information Report Requirements

If an entity is created or registered to do business on or after January 1, 2024, the entity’s initial BOI report must generally provide the same information and documentation required for each beneficial owner to be provided for each “company applicant” of the reporting company. A “company applicant” is defined as (1) the individual who made the state filing creating or registering the entity, and (2) the individual primarily responsible for directing or controlling such filing.  If the filer was primarily responsible for the filing, then only that individual would be identified as the company applicant, otherwise, both the filer and the individual primarily responsible for the filing would be identified as the company applicant.  A company applicant could be an attorney or accountant engaged by the entity to file the BOI report. The company applicant’s address may be the company applicant’s business address if the filing was made in the company applicant’s course of business, such as a paralegal, otherwise the individual’s residential address must be provided. An exception to the requirement to report the company applicant applies if the entity meets the reporting company exemption for certain foreign regulated or indirectly regulated investment companies. If the company applicant applied for a FinCEN identifier and provided the reporting company with it, then the reporting company may include it in the BOI report instead of the information that would otherwise be required for the company applicant.

The reporting company must also include the following information about the reporting company in the initial BOI report: (1) the reporting company’s full legal name; (2) any trade name or ‘‘doing business as’’ name of the reporting company; (3) complete current address of the reporting company’s principal place of business in the United States, or if none, the primary location in the United States where the reporting company conducts business; (4) its state, tribal or foreign jurisdiction of formation; (4) for a foreign reporting company, the state or tribal jurisdiction where the reporting company first registers; and (5) Internal Revenue Service Taxpayer Identification Number (“TIN”) (including an Employer Identification Number) or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.

Other Filing Deadlines

Updated reports are due within 30 days of any change in the information previously reported about the reporting company or any of the beneficial owners.  The same deadline applies to changes in information submitted by an individual in order to obtain a FinCEN identifier. Such changes can include a change in ownership, change in senior officer status, change in a beneficial owner’s name, address, or government identification number or document, or a minor child reaching the age of legal adulthood. A reporting company is not required to file an updated report for any changes to previously reported personal information about a company applicant.

If at any time a reporting company becomes aware or has reason to know of an inaccuracy in a filed BOI report that remains inaccurate, then it must file a corrected report within 30 calendar days of that time.  The same 30-day timeline applies to inaccuracies in information submitted by an individual in order to obtain a FinCEN identifier.  There are no penalties for filing an inaccurate BOI report provided it is corrected within 90 calendar days of when it was filed, assuming that the inaccuracy was not part of a willfully provided false or fraudulent BOI report.

Exemptions from Reporting Requirements

There are 23 categories of exemptions from reporting company status.  These include companies registered under the Securities Exchange Act of 1934 (which does not include companies registered only under Regulation A or Regulation Crowdfunding under the Securities Act of 1933), banks, insurance companies, registered broker-dealers, certain other regulated entities; large operating companies, which have more than 20 full-time employees in the United States, reported more than $5 million on the previous year’s U.S. tax return and have a physical office in the United States; subsidiaries of certain exempt entities; and certain inactive entities that have had no operations since January 1, 2020 and meet other conditions.  FinCEN estimated that most companies would not be qualified as exempt.[2]  When exempted companies lose their exempt status, they must file an initial BOI report with FinCEN within 30 calendar days. If an entity filed a BOI report and later qualifies for an exemption from reporting company status, it must file an updated BOI report within 30 calendar days to indicate that it is newly exempt from the reporting requirements.

How The Reports Must Be Filed

FinCEN BOI reports must be electronically submitted through a secure FinCEN filing system. The filing system will not be available before January 1, 2024. There will be no fee to submit a report through this system.

Proposed Extension of the Initial Reporting Deadline

On September 27, 2023, FinCEN issued a proposed amendment to the BOI reporting rule.  The proposed amendment would extend the deadline to file initial BOI reports for entities created or registered on or after the rule’s effective date of January 1, 2024, and before January 1, 2025. It would extend that filing deadline from 30 days to 90 days for those entities to give those entities additional time to understand the new reporting obligation and collect the necessary information to complete their filings. Entities created or registered on or after January 1, 2025 would have 30 days to file their BOI reports with FinCEN, as already required under the BOI reporting rule. As of the date of this publication, this proposed amendment remains pending and may or may not be adopted as proposed.

Bevilacqua PLLC is here to help you understand the potential ramifications of the FinCEN beneficial ownership information reporting rule and to navigate its requirements. Should you need assistance in any of those regards, please contact Joseph J. Kaufman at joseph@bevilacquapllc.com or (202) 869-0888 (ext. 113).

[1] 31 CFR 1010.380.

[2] In the adopting release for its BOI reporting rule, FinCEN stated that it estimates that there will be approximately 32.6 million existing reporting companies and 5 million new reporting companies formed each year.  FinCEN stated that it estimates that there are a total of 4,024,577 companies qualified for exempt status.