Thanks to the Corporate Transparency Act, starting Jan. 1, 2024, all companies created in the United States must complete a new form with the Treasury Department’s Financial Crimes Enforcement Network, commonly known as FinCEN, unless one of 23 exceptions applies. Companies created before Jan. 1, 2024, have one year to comply and may register with FinCEN any time before Jan. 1, 2025. Companies formed in 2024 or after have 30 days after creation to make a beneficial ownership information (“BOI”) filing. A person who willfully violates the BOI reporting requirements may be subject to a civil penalty of up to $591 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years’ imprisonment and a fine of up to $10,000.
WHICH FIRMS MUST REPORT?
The BOI law and rule for who must report generally includes all non-public U.S. companies that filed with a secretary of state or tribal-level office to create the company. In addition, all companies that registered to do business as a foreign company must file with FinCEN. There are no de minimus exceptions for active small businesses or exceptions for sole-owner pass-through entities. The law is designed to cast light on small closely held private companies that can be used to hide identities for suspicious purposes; thus, even the smallest firms must comply.
However, 23 enumerated exemptions exist for publicly traded, very large or highly regulated companies that are already known to the federal government by virtue of other charters or registrations. Additional information about the entities that are exempt can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR Section 1010.380(c)(2) and are discussed further below.
WHAT IS BENEFICIAL OWNERSHIP INFORMATION
Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company. FinCEN defines a beneficial owner as anyone who, directly or indirectly, owns or controls at least 25% of the ownership interests of a company registered to do business in the United States. Alternatively, a beneficial owner can be defined as someone exercising “substantial control” over that company. Any senior officer is deemed to have substantial control over a reporting company. The term “senior officer” means any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer or any other officer, regardless of official title, who performs a similar function. Additional information about the definition of substantial control and who qualifies as exercising substantial control can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR Section 1010.380(d)(1).
What to Report
Non-exempt private companies must report:
- Its legal name;
- Any trade names, “doing business as” (d/b/a) or “trading as” (t/a) names;
- The current street address of its principal place of business if that address is in the United States (for example, a domestic reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters);
- Its jurisdiction of formation or registration; and
- Its Taxpayer Identification Number.
A reporting company will also have to indicate the type of filing it is making (that is, whether it is filing an initial report, a correction of a prior report or an update to a prior report). For each individual who is a beneficial owner or a company applicant, a reporting company must report:
- The individual’s name, date of birth and residential address;
- A unique identifying number from an acceptable identification document (driver’s license or passport) with an image; and
- The name of the state or jurisdiction that issued the identification document.
HOW CAN A COMPLEX FIRM MAKE THIS registration MORE EFFICIENT?
A beneficial owner is allowed to provide by him or herself the identifying information directly to FinCEN. That owner can then obtain a “FinCEN identifier,” which must be included in that company’s BOI filing to FinCEN.
When Does Reporting Begin?
Reporting companies created or registered in the United States before Jan. 1, 2024, will have one year—that is, until Jan. 1, 2025—to file their initial BOI reports. Companies created or registered after Jan. 1, 2024, will have 30 days after creation or registration to file. Once they have filed an initial report, both existing and new reporting companies will be required to provide updates of any BOI changes within 30 days of the change.
What are the Exceptions?
There are 23 types of entities that may be exempt from the beneficial ownership information reporting requirements. These entities include companies that are already registered with state or federal agencies, such as chartered banks, licensed money transmitters or some entities registered with the Securities and Exchange Commission.
Below is a list of the types of entities that are exempt:
- Certain types of securities issuers, including most public companies and those registered with the SEC;
- Large operating companies with more than 20 full-time employees, more than $5 million in gross receipts or sales and an operating presence at a physical office within the United States;
- A U.S. governmental authority;
- Depository institutions, like banks and credit unions;
- Money services businesses registered with FinCEN;
- SEC registered brokers or dealers;
- Securities exchanges or clearing agencies;
- SEC registered investment advisors;
- SEC registered venture capital fund advisers;
- Insurance companies and certain state-licensed insurance producers;
- Commodity Exchange Act registered entities;
- Public accounting firms registered under the Sarbanes-Oxley Act;
- Certain types of regulated public utilities;
- Financial market utilities designated by the Financial Stability Oversight Council;
- Certain pooled investment vehicles operated or advised by a depository institution, registered broker-dealer, registered investment fund advisor or filing venture fund advisor;
- Certain types of tax-exempt entities, including 501(c) nonprofits and entities assisting a tax-exempt entity;
- The subsidiaries of many of the exempt entities listed above with the exception of subsidiaries of exempt entities described as money services businesses, pooled investment vehicles and an entity assisting a tax-exempt entity; and
- Certain types of inactive entities that were in existence on or before Jan. 1, 2020, the date the Corporate Transparency Act was enacted.
HOW TO COMPLY
The registration website is publicly available at https://boiefiling.fincen.gov/fileboir. FinCEN has also published a 50-page small entity compliance guide, available here on its website. For more complex organizations with small privately held subsidiaries, you may wish to consult your legal or accounting advisors to determine the applicability of any exceptions.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING NEW REQUIREMENTS FOR COMPANIES TO REGISTER WITH FINCEN UNDER THE CORPORATE TRANSPARENCY ACT. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS. THE INFORMATION IN THIS ARTICLE IS ACCURATE AS OF THE PUBLICATION DATE. BECAUSE THE LAW IN THIS AREA IS CHANGING RAPIDLY, AND INSIGHTS ARE NOT AUTOMATICALLY UPDATED, CONTINUED ACCURACY CANNOT BE GUARANTEED.