Companies Now Required to Report Beneficial Owner Information to Federal Government
By Kyle D. Winey, Esq. and Melissa L. Ruby, Esq.
In 2021, the U.S. Congress enacted the Corporate Transparency Act (“CTA”), a law which authorizes the collection of beneficial ownership information (“BOI”) of domestic and foreign corporations and limited liability companies. This law, purportedly enacted to counter money-laundering schemes and financial terrorism networks, creates an ongoing obligation for companies to report all their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”) (a bureau of the United States Department of the Treasury). This article answers critical questions regarding filing a Beneficial Ownership Interest Report (“BOI Report”).
Pursuant to the CTA, all “Reporting Companies” must file a BOI Report with FinCEN. Reporting Companies are corporations, limited liability companies, or other similar domestic or foreign business entities that do not meet one of the 23 exemptions provided for under the CTA. In short, most small businesses are likely Reporting Companies and are required to file a BOI Report. In contrast, nonprofits and large businesses are likely not Reporting Companies and, therefore, do not have to file a BOI Report.
When filing a BOI Report, Reporting Companies must identify all beneficial owners of the company. A beneficial owner is any individual who, directly or indirectly, (1) exercises substantial control over a Reporting Company (e.g., senior corporate officers, board of directors, etc.) or (2) owns or controls at least 25 percent of the ownership interest of a reporting company (e.g., stock, equity, voting rights, etc.). There are certain exceptions to the reporting requirement for some beneficial owners, but, in general, the Reporting Company is required to report the basic identifying information (e.g., full name, residential address, date of birth, driver’s license or passport number, and image of that document) of all beneficial owners to FinCEN through the BOI Report. This reporting obligation appears to be continuous, meaning that FinCEN that information regarding a Reporting Company’s beneficial owners be update whenever there is a change in information (i.e., new beneficial owner, removal of a beneficial owner, change in beneficial owner’s information, or change in Reporting Company status).
In lieu of providing the personal information of each beneficial owner, a Reporting Company may (but is not required to) provide each beneficial owner’s FinCEN identifier (“FinCEN ID”) on the BOI Report. A FinCEN ID is a unique identifying number which a beneficial owner of a company applies for directly from FinCEN. This direct application may be useful for individuals who have privacy concerns about providing their personal identifying information to one or more Reporting Companies for whom they are beneficial owners. However, individuals who have a FinCEN ID are required to report to FinCEN, within 30 calendar days, any changes to their personal identifying information that they initially reported – even if they cease to be beneficial owners of any companies. Although FinCEN has stated that it is assessing options for deactivating a FinCEN ID so that the continuing obligation to update personal information will end, FinCEN has not yet provided for that deactivation option.
Reporting Companies created before 2024 have until January 1, 2025 to file their initial BOI Report. Reporting Companies created between January 1, 2024 and January 1, 2025, have 90 days after their creation to file their initial BOI Report. And, Reporting Companies created on or after January 1, 2025, will have 30 days after their creation to file their initial BOI Report. Willful failure to timely file or update a BOI report may result in significant penalties including civil fines up to $500 per day for each violation, adjusted annually for inflation, and criminal penalties of up to two years of imprisonment and a fine of up to $10,000. More information regarding the BOI reporting requirements can be found here: BOI Small Compliance Guide v1.1 (fincen.gov). This resource provides questions to help determine whether your business is a Reporting Company, who in your business is a Beneficial Owner, and how complete your BOI Report. BOI Reports can be filed here: BOI E-FILING (fincen.gov).
Simms Showers attorneys bring decades of experience in assisting small business navigating through the minefield of state and federal business regulations. If you have questions regarding this new BOI reporting requirement or require assistance in filing the mandatory BOI Report, you can contact Simms Showers at (703) 771-4671 or Kyle Winey at kdw@simmsshowers.com for specific legal advice based on your particular situation.
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Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum.
