What is the Beneficial Ownership Information Reporting Requirement?

Date February 7, 2024
Categories

What is the Beneficial Ownership Information Reporting Requirement?

  • In 2021, the Corporate Transparency Act was enacted to provide beneficial ownership information (BOI) to the U.S. Treasury Financial Crimes Enforcement Network (FinCEN). This is part of the U.S. government’s efforts to counteract money laundering and other such illegal activities and identify shell companies.
  • It is estimated that 32.6 million companies will be required to disclose information regarding their “beneficial owners.”
  • These filings will be available upon approved request to federal, state, local, and tribal officials for authorized activities related to national security, intelligence, and law enforcement. For limited applications, this information can also be made available to financial institutions.

Who is required to file?

Companies are required to report BOI information when they meet the definition of a “reporting company” and do not qualify for an exemption. A domestic reporting company would generally include a corporation, limited liability company (LLC), and companies created by filing documents with a secretary of state, such as a limited liability partnership, business trust, and other limited partnerships. The term “foreign reporting company” generally includes entities formed under the law of a foreign country and registered to do business in any U.S. state.
Who is exempt from filing?

There are currently 23 listed exemptions, including exemptions for SEC-registered entities, banks, credit unions, investment companies and advisors, insurance companies, and tax-exempt entities. See the complete list from FinCEN here.

An exemption is also available to a “large operating company,” generally defined as a company with a physical office in the U.S., more than 20 full-time employees, and more than USD 5 million in gross receipts or sales from U.S. sources.
When are filings due?

  • Reporting companies created or registered to do business in the U.S. prior to January 1, 2024, are required to file an initial report by January 1, 2025.
  • Reporting companies created or registered to do business in the U.S. on or after January 1, 2024, must file an initial report disclosing the identities and information regarding their beneficial owners within 90 days of creation or registration.
  • Reporting companies created or registered to do business in the U.S. on or after January 1, 2025, must file an initial report disclosing the identities and information regarding their beneficial owners within 30 days of creation or registration.
  • Once the initial report is filed, an updated BOI report must be filed within 30 days of a change in their beneficial ownership.

Who is a beneficial owner of a reporting company?

A beneficial owner is any individual who either directly or indirectly:

  • Owns or controls at least 25% of a reporting companies ownership interest
  • Exercises substantial control over a reporting company

What are the potential risks of not filing?

  • A person who willfully violates the BOI reporting requirement is subject to a civil penalty of up to $500 per day.
  • Additionally, there is the potential for a criminal penalty of up to $10,000 and up to two years of imprisonment.
  • These penalties can be assessed to both the filer of the BOI report and anyone who willfully provides the filer with false information.

Who should we contact to assist in determining if a filing is required?

  • Unfortunately, the process of determining if a company has a reporting requirement and the filing of the BOI is considered the practice of law; as a CPA firm, HBK is unable to assist in determining filing requirements and/or filing the BOI report.
  • We recommend seeking the advice of your preferred attorney or we can make a recommendation.
  • Many registered/statutory agents can assist with the filing as well.
  • You can also file the reports yourself at the FinCEN’s BOI E-Filing website at no cost.
  • The FinCEN website also contains a comprehensive FAQ section and helpful resources.

If you have questions or need assistance, please contact your HBK representative.

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