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Friday, December 8, 2023

What Is Beneficial Ownership Reporting?

As you may have heard, the U.S. Treasury Department recently adopted final rules implementing the beneficial ownership reporting requirements that originally were introduced under the Corporate Transparency Act (CTA), part of the Anti-Money Laundering Act of 2020. The CTA was designed to identify corporate shells and curtail the use of such entities for money laundering schemes. The law required the Financial Crimes Enforcement Network of the U.S. Treasury Department (FinCEN) to compile a database of U.S. Businesses and their beneficial owners. To create such database, FinCEN adopted recent rules to establish (a) when such reports are due, (b) which entities must report the requested beneficial ownership, and (c) what information must be reported. While the CTA may have been designed to target such shell companies, the final FinCEN rules impose the reporting requirements on most small businesses and real estate limited liability companies (LLCs).

As a new rule, there have been modifications and updates with the most recent being a November 30, 2023 amendment. Additionally, although it appears that the form to report the information has been approved as of November 27, 2023, that form has not been released by FinCEN. The electronic portal through which the forms are to be filed is not currently available and will not be available until January 1, 2024. This report, though, contains the current information you need to make sure your company follows the reporting requirements.

What Is the Timeframe for Beneficial Ownership Reporting?

Companies created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial beneficial ownership report. Companies created or registered after January 1, 2024, have 90 days from the date the company receives notice from the secretary of state or another office that its creation or registration is effective to file a beneficial ownership report.

Which Companies Have to File a Beneficial Ownership Report?

The reporting of beneficial ownership information (BOI) applies to domestic and foreign corporations, LLCs and other entities either created or registered to do business in any U.S. state or tribal jurisdiction by filing a form or other document with a secretary of state or similar office under the law of a state or Indian tribe. So, the beneficial ownership rule applies to most businesses in the U.S. other than domestic sole proprietorships.

Which Companies Are Exempted from Filing Beneficial Ownership Reports?

  • “Large operating companies” employing more than 20 full time employees in the U.S. that have: (a) previously filed federal tax returns; (b) more than $5 million in gross receipts or sales; and (c) an operating presence at a physical office in the U.S.;
  • Certain inactive companies;
  • Companies subject to existing regulatory reporting requirements, i.e., banks, investment companies, brokers or dealers in securities, certain tax-exempt entities, public companies;
  • A complete list of exempt entity types is available on the FinCEN website:
What Information Do Companies Need to Include in a Beneficial Ownership Report?

The following items need to be included in the beneficial ownership report:
  • The business’s legal name and any trade names or “doing business as” (DBA) names;
  • The current street address of its principal place of business in the U.S.;
  • Its jurisdiction of formation or registration;
  • Its taxpayer identification number;
  • The name, date of birth, and address of all beneficial owners of the company;
  • For those companies formed after January 1, 2024, the name, date of birth, and address of the individual who directly filed the document to create the company and the individual who is primarily responsible for directing or controlling the filing of the creation documents (Company Applicant);
  • A unique identifying number of each Beneficial Owner and Company Applicant from an acceptable identification document, such as a driver’s license issued by a U.S. state or passport.
The company must also submit an image of the identification document to FinCEN.

Who is a Beneficial Owner?

A Beneficial Owner includes individuals and/or companies who:
  • Directly or indirectly exercise “substantial control” over a company, or
  • Directly or indirectly owns or controls 25% or more of a company’s ownership interests.
A person can be a Beneficial Owner when they have significant influence over the activities and decisions of the entity, even if they do not own a substantial portion of the company’s ownership interest or hold a formal title such as, but not limited to, CEO or President. Further examples of who is encompassed within the definition of “Beneficial Owner” can be found on the FinCEN website:

Can an Individual and/or Company Obtain an Identifier to Ease Reporting Requirements?

For those individuals and/or companies who would be considered Beneficial Owners of multiple entities, it may be beneficial for such individual or company to obtain a FinCEN Identifier (FinCEN ID). The application to obtain a FinCEN requires the applicant to report the same BOI information as set forth above, but once a FinCEN ID has been issued, the reporting company can include the Beneficial Owner’s FinCEN ID on the report rather than having to reproduce the information and image of the identification document.

How Will Beneficial Ownership Reporting Take Place?

Businesses will report beneficial ownership information to FinCEN electronically through a secure filing system on FinCEN’s website. That system is being developed and will be available before the initial filing deadline. No charge will be assessed for the filing of beneficial ownership reports.

How Often Will a Company Be Required to Submit a Report?

There is no annual BOI reporting requirement. Reporting companies will only be required to update or correct BOI reports if there is a change to the required information regarding the company and/or the Beneficial Owners. Such amendment should be filed within thirty (30) days of the date of the change.

What Are the Penalties for Noncompliance with the Beneficial Ownership Rule?

Businesses not complying with beneficial ownership information reporting requirements can face stiff penalties. Any company that fails to file a required beneficial ownership report or amendment by its filing deadline is subject to a fine of $500 per day, up to a maximum of $10,000. Willful failures or intentionally filing inaccurate information is a felony, punishable by up to two years in prison.

What Should I Be Doing Now?

If you have a company which is currently in existence and/or will be formed before January 1, 2024, your report will not be due for twelve (12) months. While we would encourage you to begin gathering information regarding your beneficial owners, we would suggest allowing FinCEN a few weeks to work out any errors in the new filing systems prior to filing the report.

Please also do not submit any BOI information to a third party at this time. FinCEN has already identified recent fraudulent attempts to solicit information from individuals through “Compliance Notices.” Please note that FinCEN will not send unsolicited requests for any BOI information and you should take care not to share any personal identifiable information in response to any notice.

Please note that the requirements are still changing. Please review FinCEN’s website for the most up-to-date information:

Stagnaro, Saba & Patterson Co., LPA will continue to update this information as it becomes available. SSP can assist with such filings and we are available to address any questions or concerns you may have. Please do not hesitate to contact our office to speak with us.


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