Oct 29, 2024
What is it?
In 2021, Congress passed the Corporate Transparency Act, which requires certain businesses to file beneficial ownership information with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department. For entities incorporated or otherwise formed prior to January 1, 2024, the deadline for filing initial information is January 1, 2025. This Client Update sets forth the basic rules for who must file, and what information must be provided.
What entities does it apply to?
The Beneficial Ownership Information (“BOI”) reporting requirements apply to all U.S. entities formed by filing a document with a state secretary of state. This includes corporations, limited liability companies, limited liability partnerships, limited partnerships, etc. The BOI requirements do not apply to sole proprietorships, partnerships not registered as an entity, or any other business association which has not filed a registration with any state secretary of state.
However, there are 23 specific exceptions to the BOI filing requirements. A full list may be found here, but the exemptions mainly fall into four categories:
Entities which are already regulated or required to file reports with a government agency (securities firms, insurance companies, banks, etc.)
Tax-exempt entities
Large operating entities (entities with more than $5 million in annual revenue and more than 20 full-time, U.S.-based employees)
Inactive entities
What individuals does it apply to?
If an entity is required to file BOI information, it must provide such information regarding:
Any individual who owns or controls at least 25% of the reporting company
Any individual who exercises “substantial control” over a reporting company
Any individual who participates in creating a new entity after January 1, 2024
The reporting requirements apply only to individuals, and not to other entities that may own 25% of the reporting company, exercise substantial control, or create a new entity. But if an entity owning 25% of a reporting company is not itself exempt, then the beneficial owners of that entity must be included in the reporting company’s BOI report.
“Substantial control” is fully defined here, but mainly applies to:
Senior officers (President, CEO, CFO, COO, General Counsel, etc.)
Other “important decision makers,” such as individuals who direct business ventures, finances, or corporate structure
As should be obvious, the exact boundaries of “substantial control” have not been fully developed, and we expect that it will be several years before the lines are more clearly drawn. For now, we urge reporting companies to err on the side of over-inclusion – if an individual might fall into one of the above categories, their information should be reported.
The individuals involved in creating an entity (e.g., filing a certificate of incorporation or formation with a secretary of state) include the individual who actually files such document, as well as the individual primarily responsible for preparing or overseeing the filing (if different from the actual filer). For example, if an attorney prepares a certificate of incorporation, but the certificate is actually filed by a paralegal, information regarding both the attorney and the paralegal must be provided.
What information must be provided?
Reporting companies must provide:
Full and exact legal name;
Any trade names;
The current street address of principal place of business in the U.S. (cannot be a PO Box);
Jurisdiction of formation or registration; and
Taxpayer Identification Number
Beneficial owners must provide:
The individual’s full legal name;
Date of birth;
Residential address
The identifying number from, and copy of, a U.S. passport, U.S. state driver’s license, or other state-issued identification document (including an image of the document)
If the beneficial owner has none of the above forms of identification, a copy of a foreign passport must be provided (including an image of the document)
Individuals who incorporated the reporting entity must provide the same information as beneficial owners, except that if an individual forms an entity as part of its business (i.e., an attorney or an agent for service of process), the individual may report his or her business address.
When do I have to report this information?
For reporting entities formed prior to January 1, 2024, the initial beneficial ownership information report must be filed by January 1, 2025.
For reporting companies formed after January 1, 2024 but before January 1, 2025, the initial beneficial ownership information report must be filed within 90 calendar days after receiving actual or public notice that its creation or registration is effective.
For reporting companies formed after January 1, 2025, the initial beneficial ownership information report must be filed within 30 calendar days after receiving actual or public notice that its creation or registration is effective.
Do I have to update this information?
Yes. You must provide updated information within 30 calendar days if:
There are changes to information reported for the reporting company, such as registering a new business name, changing principal address, etc.
There are changes to who the beneficial owners are, such as a new officer, a new 25% owner, or the loss of a 25% owner
There are changes to beneficial owners’ names, addresses, identifying numbers, or updated driver’s license photo
Where do I file this information?
The required information must be filed through FinCEN’s website, https://www.fincen.gov/boi
What if I do not file the required information?
Failing to file the required information could result in civil and criminal penalties
Civil penalties include a fine of $500 per day (adjusted for inflation)
Criminal penalties include imprisonment or fine of $10,000
Where can I find more information?
You can locate additional information from the FinCEN website, or contact any of the attorneys at Kirsch & Niehaus by phone or email.