Authored by Jonathan Hornik, Esq. and Peter Kelegian, Esq.
Under the new beneficial ownership reporting requirement (the “BOI Rule”) that took effect on January 1, 2024, United States legal entities, and foreign legal entities that do business in the United States, that fall within the definition of reporting company must provide information about their entities and their entities’ beneficial owners to the US Financial Crimes Enforcement Network (“FinCEN”). Promulgated by FinCEN, the BOI Rule implements the reporting requirements of the Corporate Transparency Act (“CTA”), enacted into law on January 1, 2021. The CTA and the BOI Rule are part of a U.S. government strategy to combat financial crimes.
Company information that must be reported by a CTA “reporting company” includes the legal name and any trade names of the company, its principal business address in U.S, U.S. tax jurisdiction, and tax identification number. Beneficial owner information that must be reported by a reporting company includes each beneficial owner’s legal name, date of birth, residential or business address; a unique identifying number from a government issued photo ID, and a photocopy of the ID itself.
A reporting company is any corporation, LLC or similar entity created or registered to do business in the US. Entities not required to report include general partnerships, trusts in general, highly regulated companies and large operating companies. Large operating companies are defined as entities with (i) 20 or more full-time employees in the U.S., (2) an operating presence at a physical office in the US and (3) more than $5,000,000 in gross receipts. The BOI Rule also provides an exemption from reporting requirements for entities that are treated for purposes of the BOI Rule as subsidiaries of exempt entities. (Note that the BOI Rule’s definition of subsidiary may be narrower than that used for certain accounting purposes.)
An individual maybe a beneficial owner in one of two ways:
- By exercising “substantial control” over the reporting company; senior officers, individuals with the authority to appoint/remove senior officers, and important decision makers are deemed to exercise “substantial control”.
- By controlling, directly or indirectly, 25% or more of the company’s ownership interests. An individual who acts as an intermediary, agent, or custodian for another may be considered to have indirect ownership.
For entities formed after January 1, 2024, a company applicant must be identified. A company applicant must be an individual and may either be a direct filer or an individual who directs or controls the filing action. If a reporting company has one individual who directly filed the document and another who controlled or directed the filing, both individuals must be identified.
Reporting Company filing deadlines.
- if formed prior to January 1, 2024: file by January 1, 2025
- if formed on or after January 1, 2024, but before January 1, 2025: file within 90 days of earlier of creation or registration date
- if formed on or after January 1, 2025: file report within 30 days of creation or registration date.
- if changing previously reported information: file updated reports within 30 days of change.
Penalties for willfully filing false information.
- civil penalties of up to $500 per day (maximum of $10,000)
- criminal penalties of up to $10,000 and/or up to 2 years in prison
Reporting companies should prepare for their applicable CTA compliance date by familiarizing themselves with the CTA’s requirements and developing processes for identifying their beneficial owners and, if applicable, company applicants, as well as for collecting and updating reportable information. We recommend that you consult with your attorney to determine whether you are a reporting company and what your reporting obligations may be under the CTA.