Starting January 1, 2024, many companies will have to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Beneficial owners are the individuals who ultimately own or control the company. The goal of these efforts is to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. This is a result of the 2021 Corporate Transparency Act passed by Congress.
Companies that existed prior to January 1, 2024 will have until December 31, 2024 to complete their initial filing. Reporting companies include corporations, LLCs, and any other company created by the filing of a document with a secretary of state or any similar office under the law of a State. This includes disregarded entities and single member LLCs that have no separate income tax filing. New companies formed during 2024 will have 90 days from formation to complete their initial filing, in 2025 this window drops to 30 days from formation.
As with other FinCEN filings, there are significant penalties involved here. Failure to report complete or updated benefited ownership information to FinCEN may result in a civil or criminal penalties, including 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. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
Exemptions
The Reporting Rule exempts 23 specific types of entities from the reporting requirements.
| 1 | Securities reporting issuer | 13 | State-licensed insurance producer |
| 2 | Governmental authority | 14 | Commodity Exchange Act registered entity |
| 3 | Bank | 15 | Accounting firm |
| 4 | Credit union | 16 | Public utility |
| 5 | Depository institution holding company | 17 | Financial market utility |
| 6 | Money services business | 18 | Pooled investment vehicle |
| 7 | Broker or dealer in securities | 19 | Tax-exempt entity |
| 8 | Securities exchange or clearing agency | 20 | Entity assisting a tax-exempt entity |
| 9 | Other Exchange Act registered entity | 21 | Large operating company |
| 10 | Investment company or investment adviser | 22 | Subsidiary of certain exempt entities |
| 11 | Venture capital fund adviser | 23 | Inactive entity |
| 12 | Insurance company |
Exemption 21 includes entities employing more than 20 full-time employees and greater than $5,000,000 in gross receipts.
Each type of entity above has further details to verify that the entity qualifies, those details can be found in the Beneficial Ownership Information Reporting Requirements Small Entity Compliance Guide.
Beneficial Owners
Reporting companies will then have to determine who is a beneficial owner of the entity. A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company OR owns or controls at least 25 percent of the ownership interests.
There are a number of factors that determine substantial control. The Small Entity Compliance Guide provides significant insight into this and should be examined further to determine each entity’s reporting requirements.
There are 4 main areas for determining individuals who exercise substantial control
- Senior officers such as President, CFO, GC, CEO, or COO
- Appointment or removal authority for senior officers or a majority of the board of directors
- Important decision-maker including decisions regarding business, finances, and structure
- Catch-all for individuals that have any other form of substantial control
Initial Filing
For reporting entities that need to complete their initial filing, the following information will be needed from each beneficial owner of the entity:
- Full legal name
- Date of birth
- Complete current address
- One of the following documents (non-expired) to establish a unique identifying number, an image of the document is required as part of the reporting submission
- U.S. passport
- State driver’s license
- Identification document issued by a state, local government, or tribe
- If an individual does not have any of the previous three documents, a foreign passport
Subsequent Filings
After completing the initial filing, any change to the required information about the company or its beneficial owners mandates an updated BOI report no later than 30 days after the date on which the change occurred. This is a significant piece and will require updating how records are maintained and updated. Some examples provided by FinCEN are below, as you can see these will likely be common. Failure to timely complete these updates runs the risk of significant penalties.
- Any change to the information reported for the reporting company, such as registering a DBA
- A change in beneficial owners, such as a new CEO, ownership sale, or death
- Any change to a beneficial owner’s name, address, or unique identifying number documents
- This includes routine events such as a beneficial owner moving, renewing their passport/driver’s license, or changing their name in marriage
This is only a brief overview to bring awareness to this new filing. There are significant penalties for noncompliance and something that will require updating internal controls to ensure reporting stays up to date. MMKR will not be completing these filings, but we want to provide information so that everyone is able to determine and implement best practices.
