Background and Purpose

In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This law creates a new beneficial ownership information (BOI) reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.

Which Companies Must File

Starting January 1, 2024, nearly all corporations, limited liability companies, and other business organizations which are formed by a filing with the secretary of state must file a report with the Financial Crimes Enforcement Network (“FinCEN) identifying the beneficial owners and company applicant of the company (defined below).  If a company is required to file, it is referred to as a Reporting Company.

Are there Any Exemptions

There are 23 categories of companies who are exempt from filing.  The list includes insurance companies, accounting firms, registered broker dealers, and non-profits.  A complete list can be found here: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

The one exemption that may apply to NavBat clients is the exemption for large operating companies.  A business is exempt under the large operating company exemption if: (a) it employs more than 20 full time employees in the United States; (b) it has an operating presence with an exclusive physical office location in the United States; and (c) it has filed a federal tax return in the previous year reporting more than $5 million in revenue generated in the United States.

Beneficial Owners and Company Applicants

All Reporting Companies must report beneficial owners.  Reporting Companies formed after January 1, 2024 must also report company applicant(s).

A beneficial owner is any individual who, directly or indirectly, (i) Exercises substantial control over a reporting company, OR (ii) Owns or controls at least 25 percent of the ownership interests of a reporting company.  An individual might be a beneficial owner through substantial control, ownership interests, or both.  Reporting companies are not required to report the reason (i.e., substantial control or ownership interests) that an individual is a beneficial owner.  There is no maximum number of beneficial owners who must be reported.

A company applicant is the person or persons (up to a maximum of two) who directly filed the document that created a domestic reporting company and, if applicable, the individual who was primarily responsible for directing or controlling the filing which created the company.  All company applicants must be individuals. Companies or legal entities cannot be company applicants.

When to Report

Companies formed prior to January 1, 2024 have until January 1, 2025 to report.  Companies formed on or after January 1, 2024 and before January 1, 2025 have 90 days after formation to report.  Companies formed on or after January 1, 2025 have 30 days after formation to report.

What to Report

The Reporting Company will need to report the following information about the Reporting Company: (a) full legal name; (b) any trade names or fictitious business names (i.e., DBAs); (c) address for principal place of business; (c) jurisdiction of formation; and (d) taxpayer identification number and employer identification number.

The Reporting Company must also report the following information for each beneficial owner and company applicant: (a) full legal name; (b) date of birth; (c) residential address (except for company applicants who form companies as part of their business such as attorneys or paralegals); and (d) information from and image of a driver’s license, passport, or other identification document issued by a governmental agency.[1]

How to Report

If your company is required to file a BOI report, you must do so electronically through a secure filing system.  To file a BOI report go here: https://boiefiling.fincen.gov/fileboir

FinCEN will store BOI reports in a centralized database and only share this information with authorized users for purposes specified by law.

Consequences of Not Reporting

A company or person could face civil and criminal penalties if you disregard your beneficial ownership information reporting obligations.  As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 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.  Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

                                                                                                      

[1] Individuals may electronically apply for FinCEN identifiers. In the application, an individual must provide their name, date of birth, address, unique identifying number and issuing jurisdiction from an acceptable identification document, and an image of the identification document – the same four pieces of personal information and image Reporting Companies submit about beneficial owners and company applicants in BOI reports (section 4.1). 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.