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by Neda Hessamy
December 19, 2023

New U.S. Reporting Obligation for Beneficial Ownership Information “BOI”

Effective January 1, 2024, The Corporate Transparency Act “CTA” established a new U.S. corporate reporting obligations for certain types of corporations.

The purpose of these rules is to assist in preventing money laundering, the financing of terrorism, proliferation financing, serious tax fraud, and other financial crimes.

Who Needs to File?

Entities formed or registered to do business in the United States are now required to report their beneficial owner information or “BOI” to Financial Crimes Enforcement Network (“FinCEN”). The entities are responsible to report their individual beneficial owners. Only reporting companies are required to file BOI reports. The reporting companies are described below:

Reporting Company:

A “reporting company” includes (1) any corporation, LLC, limited partnership or similar entity created by filing a document with any U.S. state, territory or Indian tribe (i.e. U.S. domestic reporting companies), and (2) any non-U.S. entity that registers to do business with any U.S. state, territory or Indian tribe (i.e. foreign reporting companies).

If your company is neither a “U.S. domestic reporting company” nor a “foreign reporting company” because it does not meet either definition or it qualifies for an exemption, then it is not required to file a BOI report with FinCEN.

The reporting company exemptions apply to larger organizations such as securities reporting issuers, governmental authorities, banks, credit unions, brokers or dealers in securities, investment and insurance companies and as such large entities.

The reporting company must provide information on the beneficial owners and company applicants.

Beneficial Owners:

A reporting company must first identify its beneficial owners. A beneficial owner is any individual who, directly or indirectly exercises substantial control of the reporting company, has a 25% ownership interest in the reporting company or both.

Substantial Control
An individual exercises substantial control over a reporting company. If the individual meets any of four following general criteria it has substantial control over a reporting company:

  1. the individual is a senior officer of the reporting company;
  2. the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;
  3. the individual is an important decision-maker of the reporting company; or
  4. the individual has any other form of substantial control over the reporting company);

Ownership Interest
An individual who owns or controls at least 25 percent of the ownership interest of a reporting company is a beneficial owner. Any of the following may be an ownership interest:

  • equity, stock, or voting rights;
  • a capital or profit interest;
  • convertible instruments;
  • options or other non-binding privileges to buy or sell any of the foregoing; and
  • any other instrument, contract, or other mechanism used to establish ownership).

A reporting company can have multiple beneficial owners. For example, a reporting company could have one beneficial owner who exercises substantial control over the reporting company, and a few other beneficial owners who own or control at least 25 percent of the ownership interests of the reporting company. A reporting company could have one beneficial owner who both exercises substantial control and owns or controls at least 25 percent of the ownership interests of the reporting company. There is no maximum number of beneficial owners who must be reported.

Company Applicants:

There are two categories of company applicants – the “direct filer” and the individual who “directs or controls the filing action.”

Direct Filer
This is the individual who directly filed the document that created the U.S. reporting company, or the individual who directly filed the document that first registered a foreign reporting company to carry on business in the U.S. The direct filer must be identified by all reporting companies that have a company applicant reporting requirement.

Person who Directs or Controls the Filing Action
This is the individual who was primarily responsible for directing or controlling the filing of the creation or first registration document of the reporting company but may not be applicable to all reporting companies that have a company applicant reporting requirement. This individual is only required to be reported when more than one individual is involved in the filing of the document that created or first registered the company.

If more than one individual is involved in the filing, then two company applicants must be reported.

Reporting companies should not have more than two company applicants.

Not all reporting companies are required to report their company applicants to FinCEN.

A reporting company is required to report its company applicants if it is either a:

  • domestic reporting company created on or after January 1, 2024; or
  • foreign reporting company first registered to do business in the United States on or after January 1, 2024.

A reporting company is not required to report its company applicants if it is either a:

  • domestic reporting company created before January 1, 2024; or
  • foreign reporting company first registered to do business in the United States before January 1, 2024.

Reporting Requirements:

The following information must be collected by the reporting company, its beneficial owners and company applicants and provided to FinCEN:

Reporting Company:

  • the full legal name of the reporting company,
  • any trade name or “doing business as” name,
  • a complete and current U.S. street address where the entity has its principal place of business or conducts its business from,
  • the state, tribal, or foreign jurisdiction of formation of the reporting company,
  • for a Non-US reporting company, the state or tribal jurisdiction where such company first registers, and the TIN or EIN of the reporting entity, or, where a foreign reporting company has not been issued a TIN, a TIN issued by the foreign jurisdiction and the name of such jurisdiction.

Each Beneficial Owner and Company Applicant:

  • full legal name,
  • date of birth,
  • complete current address,
  • a unique identifying number and the issuing jurisdiction from a U.S. passport, and an image of one of the following non-expired documents:
    • U.S. Passport,
    • a state-issued driver’s license,
    • identification document issued by a state, local government, or tribe, if an individual does not have any of the above documents, a foreign passport, or an image of one of these documents.

Consider obtaining a FinCEN Identifier

A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual or reporting company upon request. Obtaining the FinCEN Identifier will make the BOI reporting significantly easier as the information on these entities is updated by the entity and automatically updates the information for the reporting entity.

When information of an individual or reporting company reported to FinCEN to obtain a FinCEN identifier changes, or when the individual or reporting company discovers that reported information is inaccurate, the individual or reporting company must update or correct the reported information, as applicable within 30 days. If a FinCEN identifier is not obtained, it is the reporting company’s responsibility to update this information within 30 days which may be very cumbersome depending on the number of beneficial owners of the reporting company.

Information needed to obtain FinCEN Identifiers

Individuals
Individuals may electronically apply for FinCEN identifiers. In the application, an individual must provide their personal information mentioned above. After an individual submits an application, the individual will immediately receive a FinCEN identifier unique to that individual. Once a beneficial owner or company applicant has obtained a FinCEN identifier, reporting companies may report it in place of the otherwise required four pieces of personal information about the individual in BOI reports.

Reporting Companies
A company may request a FinCEN identifier when it submits a BOI report by checking a box
on the reporting form.

We strongly recommend Reporting Companies and beneficial owners register themselves with FinCEN and obtain an identification number.

Due Date to File

The BOI Reporting Rule is effective on January 1, 2024. FinCEN will begin accepting BOI reports electronically on this date. BOI reports will not be accepted prior to January 1, 2024.

The due dates to file the BOI report depends on the date the reporting companies are created:

  1. Existing reporting companies must file their initial BOI report by January 1, 2025,
  2. Reporting companies created or registered to do business in the United States after January 1, 2024 must file its initial BOI report within 90 days after receiving actual or public notice that its creation or registration is effective.

How to Report the Beneficial Owner Information – Online Only

<pstyle=”margin-top: 0;”> The BOI report must be filed electronically through the FinCEN secure filing systems. Please note:

  • FinCEN’s filing system is currently under development and will not be available until January 1, 2024.
  • FinCEN will not accept BOI reports before January 1, 2024.
  • FinCEN will publish instructions and other technical guidance on how to complete the
    BOI report form. This guidance will be available at: www.fincen.gov/boi.

Violation Penalties

If a person willfully provides or attempt to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, to FinCEN, or willfully fail to report complete or updated BOI to FinCEN, will be subject to reporting violations penalties.
A violation of the reporting rules may result in a civil penalty of up to $500 for each day that the violation continues or has not been corrected. Additionally, a criminal penalty of not more than $10,000, imprisonment for not more than two years, or both, may apply.


Manning Elliott Is Here to Help

Please do not hesitate to contact us if you have any questions regarding the new CTA’s beneficial ownership information reporting.