Many businesses will have to comply with a new beneficial ownership information (BOI) reporting requirement, going into effect on January 1, 2024, as part of the federal government’s campaign to fight financial fraud. This new rule, which was enacted through the Corporate Transparency Act in 2021, mandates the BOI reporting to FinCEN starting January 1, 2024. As a result, certain organizations are required to file beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN) that identifies the persons who ultimately own or control the company.
The reporting requirement affects corporations, limited liability partnerships, limited liability companies, business trusts, most limited partnerships, and other entities created in or registered to do business in the United States.
There are limited exemptions, including large operating companies with at least 20 full-time employees, more than $5 million in gross receipts or sales, and an operating presence at a physical office within the U.S. Certain trusts may also be excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office.
- Businesses existing as of January 1, 2024, will have until January 1, 2025, to file the initial BOI reports. These businesses need only report the information about themselves and beneficial owners.
- New businesses beginning January 1, 2024, or after will have 30 days to file the initial BOI report with FinCEN, with the timeline starting as of the Secretary of State or similar office registration date.
These businesses must report information about the business, beneficial owners, and company applicants. A company applicant is the individual who directly files the documents to create/register the business, along with the individual who directs another to file/register the business (if different). There are no fees for submitting the BOI report.
FinCEN estimates that 32.6 million entities will be required to submit initial reports in 2024. In 2025 and beyond, FinCEN estimates that almost 5 million initial BOI reports will be filed each year.
What is a beneficial owner?
In general, a beneficial owner is any individual who directly or indirectly owns 25% or more of a company, or who directly or indirectly exercises substantial control over a company.
BOI data should be reported thru the FinCEN website once it is available. The system is currently under construction but is expected to be available by January 1, 2024. Failure to comply may result in civil penalties of $500 per day and/or criminal penalties of up to $10,000 and/or two years in jail.
What information will have to be reported?
- Legal name;
- Any trade names – such as “doing business as;”
- Current street address of the principal place of business;
- Jurisdiction of formation or registration;
- Taxpayer Identification Number (TIN);
- Type of filing, such as initial report, correction of a prior report, or update to prior report; and
- BOI data
- Individual’s name, date of birth, and residential address
- Unique identifying number from an acceptable identification document (non-expired driver’s license, non-driver identification card, or non-expired passport issued by U.S. government or state); and
- Name of the state or jurisdiction that issues the identification document.
FinCEN states that BOI ownership data will only be disclosed, under certain circumstances, to U.S. Federal agencies, U.S. and foreign law enforcement agencies, U.S. Department of the Treasury, and financial institutions.
Many of our clients are receiving emails relating to FiServ compliance requirements, which stem from the Bank Secrecy Act rule that requires all financial institutions to collect beneficial ownership information for account holders. The rule only applies to accounts opened on or after May 11, 2018, but FinCEN noted that institutions may decide to collect the same information from accounts opened prior to May 11, 2018.