Small Entities Must File New Beneficial Ownership Information Reports in 2024

November 30, 2023 | Kristine A. Tidgren

Update: On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs. FinCEN has stated that it will follow this ruling as it applies to the plaintiffs. All others must continue to comply with the CTA's reporting requirements. On March 11, the government filed its notice of appeal to the Eleventh Circuit. We will continue to follow this issue.

Update: FinCEN opened the online portal for filing Beneficial Ownership Information reports on January 1, 2024. You can access it here: https://boiefiling.fincen.gov/fileboir.

Beginning January 1, 2024, most small entities—including single member LLCs—must file online reports with the federal government, disclosing information about the beneficial owners of the entities. This new reporting requirement—estimated to impact at least 32.6 million entities in 2024—was created by the Corporate Transparency Act (CTA). Existing entities will have until January 1, 2025, to make their first beneficial ownership information (BOI) report. Entities first created or registered in 2024 will have 90 days from creation to get their first reports filed. Any entity that has already filed a report will generally have 30 days to make updates required by the CTA.

Background

The CTA was enacted as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021, Public Law 116–283. The CTA was enacted to prevent money laundering, corrupt financial transactions, and financial terrorism. It requires the Financial Crimes Enforcement Network (FinCEN) (a bureau of the U.S. Treasury) to establish and maintain a national registry of beneficial owners of entities that are otherwise not subject to disclosure regulations. Specifically, FinCEN has stated that collection of BOI will “help to shed light on criminals who evade taxes, hide their illicit wealth, and defraud employees and customers and hurt honest U.S. businesses through their misuse of shell companies.” In furtherance of these goals, the CTA authorizes FinCEN to share the collected information with government agencies, financial institutions, and financial regulations, subject to safeguards and protocols. Unauthorized use or disclosure of BOI may be subject to criminal and civil penalties. On September 22, 2022, FinCEN issued final regulations, 31 CFR § 1010.380, which go into effect January 1, 2024.

Who Must File a Report?

The rule identifies two types of reporting companies: domestic and foreign. Domestic reporting companies are corporations, limited liability companies (LLCs), or any entities created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. This generally means that limited liability partnerships, limited liability limited partnerships, business trusts in certain states, and most limited partnerships are also required to file reports if they are not otherwise excepted from the reporting requirement. Single-member LLCs, disregarded for tax purposes, are subject to BOI reporting requirements.

Foreign reporting companies are corporations, LLCs, or other entities formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

Exceptions to Reporting

The following entities are specifically excepted from the BOI reporting requirements by the FinCEN rules:

Certain types of securities reporting issuers.
A U.S. governmental authority.
Certain types of banks.
Federal or state credit unions as defined in section 101 of the Federal Credit Union Act.
Bank holding company as defined in section 2 of the Bank Holding Company Act of 1956, or any savings and loan holding company as defined in section 10(a) of the Home Owners’ Loan Act.
Certain types of money transmitting or money services businesses.
Any broker or dealer, as defined in section 3 of the Securities Exchange Act of 1934, that is registered under section 15 of that Act (15 U.S.C. 78o).
Securities exchanges or clearing agencies as defined in section 3 of the Securities Exchange Act of 1934, and that is registered under sections 6 or 17A of that Act.
Certain other types of entities registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
Certain types of investment companies as defined in section 3 of the Investment Company Act of 1940, or investment advisers as defined in section 202 of the Investment Advisers Act of 1940.
Certain types of venture capital fund advisers.
Insurance companies defined in section 2 of the Investment Company Act of 1940.
State-licensed insurance producers with an operating presence at a physical office within the United States, and authorized by a State, and subject to supervision by a State’s insurance commissioner or a similar official or agency.
Commodity Exchange Act registered entities.
Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002.
Certain types of regulated public utilities.
Any financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.
Certain pooled investment vehicles.
Certain types of tax-exempt entities.
Entities assisting a tax-exempt entity described in 19 above.
Large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States.
The subsidiaries of certain exempt entities.
Certain types of inactive entities that were in existence on or before January 1, 2020, the date the CTA was enacted.

Additional information about entities exempt from reporting is detailed in the Beneficial Ownership Information Reporting Regulations at 31 CFR § 1010.380(c)(2) and in the Small Entity Compliance Guide. Businesses must review the specific criteria for an exemption before determining that the exemption applies.

What Must Be Reported?

A reporting company must disclose:

Its full legal name and any trade name or DBA;
A complete address, including the street address of the principal place of business for U.S. companies and primary U.S. location for other businesses;
The State, Tribal, or foreign jurisdiction in which it was formed or first registered, depending on whether it is a U.S. or foreign company; and
Its Taxpayer Identification Number (TIN).
For domestic entities, this is the IRS TIN, including an employee identification number (EIN). For foreign entities without a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction should be entered.

Additionally, for each beneficial owner and each company applicant (see below), the company must provide the individual’s:

Full legal name;
Birthdate;
A complete address; and
- For company applicants who form or register an entity in the course of the company’s business, this includes the street address of the company applicant. For all individuals, beneficial owners and applicants, the address must be the residential street address of the individual.
An identifying number from a non-expired driver’s license, passport, or other approved document for each individual, as well as an image of the document from which the document was obtained.

Beneficial Owners

In general, beneficial owners are individuals who:

directly or indirectly exercise “substantial control” over the reporting company, or
directly or indirectly own or control 25% or more of the “ownership interests” of the reporting company.

Substantial Control

Individuals have substantial control of a reporting company if they direct, determine, or exercise substantial influence over important decisions of the reporting company. [31 CFR §1010.380(d)(1)]. Those deemed to exercise substantial control over a reporting company include:

Senior officers such as chief financial officers, chief executive officers, general counsel, chief operating officers, or any other similar positions, regardless of title
An individual with authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body)
An individual who directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding:
- The nature, scope, and attributes of the business of the reporting company, including the sale, lease, mortgage, or other transfer of any principal assets of the reporting company;
- The reorganization, dissolution, or merger of the reporting company;
- Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company;
- The selection or termination of business lines or ventures, or geographic focus, of the reporting company
- Compensation schemes and incentive programs for senior officers;
- The entry into or termination, or the fulfillment or non-fulfillment, of significant contracts;
- Amendments of any substantial governance documents of the reporting company
An individual with any other form of substantial control over the reporting company

An individual may directly or indirectly, including as a trustee of a trust or similar arrangement, exercise substantial control over a reporting company through:

Board representation (determined on a case-by-case basis);
Ownership or control of a majority of the voting power or voting rights of the reporting company;
Rights associated with any financing arrangement or interest in a company;
Control over one or more intermediary entities that separately or collectively exercise substantial control over a reporting company;
Arrangements or financial or business relationships, whether formal or informal, with other individuals or entities acting as nominees; or
Any other contract, arrangement, understanding, relationship, or otherwise.

Based on the breadth of the substantial control definition, FinCEN has stated that it expects a reporting company will identify at least one beneficial owner under that definition, regardless of whether (1) any individual satisfies the ownership definition, or (2) exclusions to the definition of beneficial owner apply.

Ownership Interests

Ownership interest (for purposes of determining whether an individual directly or indirectly owns or controls 25% or more of the “ownership interests” of the reporting company) is defined as follows:

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;
Any capital or profit interest in an entity;
Any instrument convertible, with or without consideration, into any share or instrument described in above, any future on any such instrument, or any warrant or right to purchase, sell, or subscribe to a share or interest described above, regardless of whether characterized as debt;
Any put, call, straddle, or other option or privilege of buying or selling any of the items described above without being bound to do so, except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company; or
Any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.

An individual may also directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, relationship, or otherwise, including:

Joint ownership with one or more other persons of an undivided interest in such ownership interest;
Through another individual acting as a nominee, intermediary, custodian, or agent on behalf of such individual;
With regard to a trust or similar arrangement that holds such ownership interest:
- As a trustee of the trust or other individual (if any) with the authority to dispose of trust assets;
- As a beneficiary who:
  - Is the sole permissible recipient of income and principal from the trust; or
  - Has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or
  - As a grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust; or
  - Through ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control ownership interests of the reporting company.

The rules provide that beneficial owners do not include:

A minor child, provided the reporting company reports the required information of a parent or legal guardian of the minor child and states that the individual is the parent or legal guardian of a minor (once the minor child reaches the age of majority, the report must be updated)
An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
An employee of a reporting company, acting solely as an employee, provided that such person is not a senior officer
An individual whose only interest in a reporting company is a future interest through a right of inheritance
A creditor of a reporting company

Company Applicants

Companies created or registered on or after January 1, 2024, must report the company applicants, in addition to beneficial owners. Company applicants include (1) the individual who directly files the document that creates, or first registers, the reporting company; and (2) the individual that is primarily responsible for directing or controlling the filing of the relevant document. Companies created or registered before January 1, 2024, are required to report only beneficial owners.

FinCen Identifier

An individual or reporting company may obtain a FinCEN identifier by submitting an application at or after the time that the reporting company submits its initial report. Each identifier is specific to the individual or reporting company. If an individual has obtained a FinCEN identifier, the reporting company may use that identifier in its report instead of reporting all of the required information for the individual.

A reporting company uses its FinCEN identifier to submit updated reports, as required.

When Must Reporting Companies File Reports?

Reporting companies created or registered before January 1, 2024, must file their first BOI report no later than January 1, 2025. Reporting companies created or registered on or after January 1, 2024, but before January 1, 2025, must file their first BOI report within 90 calendar days of receiving actual or public notice from the state’s secretary of state or similar office that the company was created or registered. Reporting companies created or registered on January 1, 2025, or later must file their initial reports within 30 days.

Once a reporting company has filed its first report, it must file a new report any time the reported information changes, making the prior report inaccurate. Reporting companies will have 30 days to report any changes or updates to reported information. The 30 days begins after the company becomes aware of or has reason to know of an inaccuracy in a prior report. Likewise, any reporting company that no longer meets the requirements of an exemption from reporting shall file its report within 30 calendar days after it no longer qualifies for the exemption.

If an individual becomes a beneficial owner by virtue of rights transferring at the death of another, a change is deemed to occur when the estate of the deceased beneficial owner is settled, either through the operation of intestacy laws or through a testamentary disposition. An updated report must identify any new beneficial owners. FinCEN has state that a change must be reported with respect to a document image when the name, date of birth, address, or unique identifying number of the document changes.

How Will Reports be Filed?

All BOI reports must be filed electronically. FinCEN will begin accepting reports on January 1, 2024. No reports may be filed before that time. The person filing the report will be required to certify that the report is true, correct, and complete.

What are the Penalties for Noncompliance?

The rule states that it shall be unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, to FinCEN in accordance with this section, or to willfully fail to report complete or updated beneficial ownership information to FinCEN in accordance with the new law.

The CTA authorizes civil reporting failure penalties of not more than $500 (inflation adjusted to $591) for each day that the violation continues or has not been remedied and criminal penalties up to $10,000. The statute also calls for possible imprisonment of up to two years. In the preamble to the rule, FinCEN states that it “intends to prioritize education and outreach to ensure that all reporting companies and individuals are aware of and on notice regarding their reporting obligations.” The final rule clarifies that a person is considered to have failed to report complete or updated BOI if the person causes the failure or is a senior officer of the entity at the time of the failure. A penalty safe harbor applies to companies that discover an inaccuracy and file a corrected report within 90 days of the filing of an initial report.

Example

In 2020, George and Marge formed GM, LLC, an entity to manage their farmland. They each own 50% of the LLC. George and Marge are the only officers of the entity, which has no employees.

George and Marge are both beneficial owners of GM, LLC. By January 1, 2025, the LLC must file an online beneficial ownership information report with FinCEN, reporting the required information for the company, George, and Marge.

If GM, LLC. is not formed until January 5, 2024, it will have 90 days to file its BOI report.

Can Reporting Companies Solicit Help with Filing Reports?

FinCEN guidance clarifies that reporting companies can enlist third-party service companies to file BOI reports on their behalf. Those seeking assistance may ask whether the attorney who set up the business structure is providing this service. At this time, it is unclear whether or to what extent making determinations regarding BOI reporting requirements constitutes the practice of law. To the extent that a determination may cross that line, accountants and non-attorney tax professionals will be unable to assist with these reports.