Understanding the Beneficial Ownership Information Reporting Rule
This article outlines the applicability and compliance requirements in connection with the new Beneficial Ownership Information Reporting Rule coming into effect on January 1, 2024 as part of the implementation of the Corporate Transparency Act.
Overview
Rules issued by the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) related to beneficial ownership of domestic and foreign companies doing business in the United States (31 CFR Part 1010.380) will come into effect starting on January 1, 2024 (the “Reporting Rule”). Many domestic and foreign companies doing business in the United States (U.S.) will now be required to electronically report beneficial ownership information to FinCEN pursuant to the Reporting Rule.
Applicable Deadlines for Compliance
The deadline for compliance with the Reporting Rule is determined by the date of creation of a domestic company, or registration with an applicable U.S. state in the case of a foreign company.
If a company is created or registered to do business before January 1, 2024, it must report by January 1, 2025.
A company created or registered in 2024 will have ninety (90) days from the date of receiving notice of creation or registration to submit the beneficial ownership information.
A company created or registered after December 31, 2024 will have thirty (30) days to submit beneficial ownership information.
Any update or correction to beneficial ownership information previously filed by a company with FinCEN must be submitted within thirty (30) days after the date from which the change occurred.
There is no fee associated with the submission of beneficial ownership information. The reported beneficial ownership information will not be publicly available, but FinCEN is authorized to disclose the data under specific circumstances to certain federal, state, and foreign governmental authorities and financial institutions. Noncompliance with the Reporting Rule may result in 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. In addition, an individual who willfully causes a company’s noncompliance or reporting of incomplete or false information may be subject to additional civil and criminal penalties.
Applicability of the Reporting Rule
A company that is a domestic or foreign reporting company under the CTA, and does not qualify for any of the twenty-three (23) types of exemptions listed in Chapter 1.2 of the Beneficial Ownership Information Small Entity Compliance Guide (BOI Guide) located on the FinCEN’s website, must comply with the Reporting Rule.
A domestic reporting company is a U.S. corporation, U.S. limited liability company, or any other company created by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.
The following information must be provided by any domestic reporting company:
full legal name;
any trade name or DBA name;
address of the principal place of business in the U.S.;
state or tribal of formation; and
IRS identification number (EIN/TIN).
A foreign reporting company is a company created under the laws of a foreign country and registered to do business in any U.S. state or any tribal jurisdiction by filing a document with a secretary of state or similar office of the U.S. state or tribe. A foreign reporting company will be required to provide the following information about its business:
full legal name;
any trade name or DBA name;
address of the primary location in the U.S. where the company conducts business;
foreign jurisdiction of creation;
state or tribal jurisdiction of first registration in the U.S., and
a tax identification number issued by a foreign jurisdiction, if an EIN/TIN is not available.
In addition, the beneficial ownership information form will have a checkbox for requesting a FinCEN Identifier, which is a unique identifier assigned by FinCEN to an individual or entity only upon request. On November 8, 2023, FinCEN issued a Final Rule on the use of a FinCEN Identifier in connection with the Reporting Rule.
Beneficial Owners
If a company is a reporting company, it must provide certain information about its beneficial owner(s). Specifically, every reporting company must identify all but no less than one beneficial owner. Generally, an individual will be treated as a beneficial owner by reason of exercising directly or indirectly substantial control over a reporting company, holding a certain percentage of the ownership interests in a reporting company, or both.
The BOI Guide provides the following criteria for determining individuals that exercise substantial control: (i) any senior officer (such as president, CEO, COO, CFO, or general counsel); (ii) any individual with a right of appointment or removal of any senior officer or a majority of the board of directors, or similar body of the company; (iii) any individual who is an important decision-maker in connection with business, finances, or structure of the company; or (iv) any other individual having substantial control over the company in any other form. An individual who owns or controls, directly or indirectly, at least 25 percent of the ownership interest of the company will also be considered a beneficial owner. However, the company is not required to report individuals falling under any of the following categories: minor children; nominees, intermediaries, custodians, or agents; employees; inheritors; and creditors.
Company Applicants
Every reporting company created or registered on or after January 1, 2024, must report an individual who physically or electronically filed the document that created a U.S. company or registered a foreign company with the secretary of state or similar office of the U.S. state or tribe. If applicable, such a company must also report an individual who was primarily responsible for directing or controlling the filing.
The following information about beneficial owners and company applicants must be provided by a reporting company:
full legal name;
date of birth;
current address; and
number, issuing jurisdiction, and photo of one of the following valid documents: U.S. passport; state driver’s license; identification document issued by a state; local government, or tribe; or foreign passport, if none of the other documents are applicable.
Next Steps
On January 1, 2024, FinCEN will launch its beneficial ownership information technology system to collect, process, and store confidential information of reporting companies. It is crucial that businesses understand whether they must comply with the Reporting Rule prior to any applicable deadlines. Compliance with the Reporting Rule will be an ongoing process. Thus, reporting companies should redesign their internal processes in order to ensure that any changes in the information provided to FinCEN are timely reported.