Beginning January 1, 2024, all companies (LLCs and corporations, regardless of how small), must submit a report of its beneficial owners and related company information (a BOI report) to the federal government.
As a general matter, companies in existence as of December 31, 2023 (i.e., the end of this year) must submit a BOI report by January 1, 2024, and companies formed in 2024 must submit a BOI report within 90 days of receiving notice of the company’s creation or registration. Companies created after December 31, 2025, have a 30-day deadline to submit required reports.
Below is an overview of some of the key elements of the BOI rule that can serve as a starting point for developing an action plan to address this new reporting requirement.
WHAT MAKES A COMPANY A COVERED ‘REPORTING COMPANY’?
A “reporting company” is any company formed in the US, or any foreign company that registers to do business in the US, by filing a document with a secretary of state or similar office, unless it comes within the scope of an exemption. Companies that qualify under any of these exemptions will not be “reporting companies” and will not need to file BOI reports (unless they later become non-exempt). Despite the breadth of the exemptions, many newly and recently formed privately held companies are not likely to qualify for an exemption, and thus will be subject to the BOI rule. Additionally, holding companies or other similar vehicles may in some cases not be within any of the categories of exemptions, though a detailed analysis may be required based on the specific facts and circumstances of a particular organization’s structure.
Key exemptions likely to exclude many companies from the BOI rule’s reporting requirements include exemptions for the following types of entities:
- Large operating companies, which the BOI rule defines to include any company that employs more than 20 full-time employees in the US, has more than $5,000,000.00 in gross receipts or sales in the US and has an operating presence at a physical office within the US.
- Public companies, based on the BOI rule definition of a “securities reporting issuer.”
- Certain types of regulated entities, such as insurance companies, banks and credit unions, brokers or dealers in securities and money services businesses (MSBs).
- Entities involved in private equity and venture capital – specifically, investment companies, investment advisers, pooled investment vehicles and venture capital fund advisers – subject to certain criteria.
- Subsidiaries of certain exempt entities, including larger operating companies, public companies, regulated entities such as banks (but not MSBs) and the exempt private equity and venture capital entities are also exempt from BOI reporting, provided in each case that the subsidiary’s ownership interests are controlled, or wholly owned, directly or indirectly, by the exempt entity.
WHAT DO REPORTING COMPANIES NEED TO DO?
A reporting company must submit a BOI report to FinCEN that includes three types of information:
- Company information, such as full legal name (and any trade names), address, jurisdiction of formation and taxpayer identification number (or equivalent issued by a foreign jurisdiction).
- Beneficial owner information, including the full legal name, date of birth, address, and the unique identifying number and image of a US passport, state driver’s license or other eligible identification document for each individual identified as a beneficial owner.
- Company applicant information, for companies created or registered on or after January 1, 2024, which is the same information required to be provided for beneficial owners.
Companies must collect the required information and submit BOI reports through FinCEN’s Beneficial Ownership Secure System (BOSS).
Once the BOI is filed, a reporting company need only updated its BOI report to report changes to company or beneficial owner information (including the beneficial owners’ identities and previously submitted information for them) no later than 30 days after the date on which the change occurred. Company applicant information does not need to be updated on a reporting company’s BOI report in the event the information changes (e.g., a change in address of a company applicant).
WHAT IS A ‘BENEFICIAL OWNER’?
Under the BOI rule, a “beneficial owner” is any individual who, directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. The BOI rule describes four categories of “substantial control”:
- The individual is a senior officer (e.g., CEO, chief financial officer, general counsel).
- The individual has authority to unilaterally appoint or remove any such senior officer or a majority of the board of directors of the reporting company.
- The individual directs, determines, or has substantial influence over important decisions made by the reporting company.
- The individual has any other form of substantial control over the reporting company.
Ownership interests for purposes of the BOI rule can include equity, stock or voting rights; a capital or profit interest; convertible instruments; options or other nonbinding privileges to buy or sell any of the aforementioned types of interests; or any other instrument, contract or other mechanism used to establish ownership. To determine whether an individual owns or controls, directly or indirectly, at least 25% of the ownership interests of the company, a reporting company may need to first identify the types of ownership interests, then calculate whether any single individual’s interests exceed 25%.
FinCEN’s Small Entity Compliance Guide provides additional information, including checklists, for identifying individuals who are beneficial owners based on the substantial control and ownership interests prongs, but companies with more complex ownership and/or governance structures may need to conduct a more detailed and nuanced analysis to identify beneficial owners.
WHAT IS A ‘COMPANY APPLICANT’?
Reporting companies created after January 1, 2024, are required to identify and report company applicants. Each such reporting company will have at least one and a maximum of two company applicants. Under the BOI rule, a “company applicant” is defined as: (1) the individual who directly files the document that creates a domestic reporting company or first registers a foreign reporting company to do business in the US; and, if applicable, (2) the individual primarily responsible for directing or controlling the filing of the creation or registration document.
WHAT IS A ‘FinCEN IDENTIFIER’ AND WHY DOES IT MATTER?
A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual upon request. An individual may directly apply for a FinCEN identifier by providing the same information that a reporting company would submit on behalf of the individual as a company applicant or beneficial owner.
A reporting company may report an individual’s FinCEN identifier in place of the required four pieces of information about the individual in BOI reports. An individual who is either a beneficial owner or a company applicant of a reporting company will therefore not need to provide personal information directly to the reporting company if the individual has obtained a FinCEN identifier and provides it to the reporting company instead. An individual must keep the information provided to FinCEN to obtain a FinCEN identifier (e.g., address information) update.
FinCEN has not yet made public the final form of the FinCEN identifier application and FinCEN is not yet accepting FinCEN identifier requests.
WHAT ARE THE PENALTIES FOR NONCOMPLIANCE?
Any person who willfully provides, or attempts to provide, false or fraudulent BOI data to FinCEN – or willfully fails to report complete or updated BOI data to FinCEN – may be subject to civil or criminal penalties of up to $10,000 and up to two years in prison. A person fails to report complete or updated BOI data to FinCEN if, with respect to a reporting company, the person “causes the failure,” which could include an individual’s refusal to provide or submit required information for a reporting company’s BOI report.
If you have any questions or would like assistance in complying with this new requirement, please feel free to reach out to us.