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Getting Ready for Beneficial Ownership Information Reports

by | Dec 29, 2023 | BOI, Business Owner, FinCEN, LLC, LLC Owner

Business owners, it’s time to get ready for the new Beneficial Ownership Information (BOI) reporting requirements coming in 2024! Starting January 1, 2024, many corporations and LLCs will have to submit a BOI report to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Department of Treasury. FinCEN has estimated that this requirement will impact tens of millions of businesses in the U.S., most of which will be small and mid-size businesses. We expect this new reporting requirement will impact almost all of our clients who have LLCs or corporations. Follow along as we answer some of the most anticipated questions ahead of this new reporting requirement:

 

Where Did This Requirement Come From?

In 2021, Congress enacted the Corporate Transparency Act. This law creates a beneficial ownership information reporting requirement as part of the federal government’s efforts to make it harder for bad actors to exploit shell companies or other complex ownership structures to hide their ill-gotten gains. 

 

Who Has to File a BOI Report?

FinCEN calls companies required to submit reports under these new laws and regulations “reporting companies.” A reporting company is any corporation, LLC, or other entity that is formed by filing a document with the secretary of state or any other similar office in a state. In Arizona, this would be the Arizona Corporation Commission. 

Just as important as who has to file a BOI report is those who are exempt from the requirement. There are 23 different exemption categories, but most of them apply to financial and money services companies. The only exemptions that may apply to a wider range of companies is the exemption for certain large operating companies (more than 20 employees, a physical operating presence in the U.S., and more than $5 million in gross receipts or sales) and the exemption for some inactive entities formed on or prior to January 1, 2020.

 

What Information Has to be Reported?

As the name implies, reporting companies will be required to identify the beneficial owners of the reporting company. FinCEN defines “beneficial owner” as any individual who owns or controls at least 25 percent of a company or has “substantial control” (think senior officers and other important decision makers) over the company. Reporting companies formed on or after January 1, 2024, will also have to identify their company applicant – the person who filed the documents with the state to form the entity.

The reporting company will have to report its legal name, trade name (if any), business address, and jurisdiction of formation. For each beneficial owner, the reporting company will have to report their full legal name, date of birth, current residential address, and the identifying number, issuing jurisdiction, and an image of the individual’s U.S. passport, driver’s license, or other identification. If you are a beneficial owner of multiple reporting companies, it will be possible to submit this information to FinCEN to obtain a FinCEN identifier to be used in subsequent reports to make the reporting process easier. 

Reported information will not be made publicly available.

 

When Exactly Does the Requirement Take Effect?

The new reporting requirement has two deadlines depending on when an entity was formed. For reporting companies formed before January 1, 2024, the deadline to file a BOI report is January 1, 2025. However, for all reporting companies formed on or after January 1, 2024, the BOI report will have to be filed within 30 days of formation approval by the Arizona Corporation Commission. FinCEN will not be accepting any reports prior to January 1, 2024; that is the earliest possible date you may submit your report if required. 

 

How is the Report Submitted?

Reports will be submitted electronically on FinCEN’s website at www.fincen.gov/boi. The reporting portal is in development and is not yet active as of November 2023.

 

What is the Penalty for Not Filing the Report or Inaccurate Reports?

The good news is that for reports that were unintentionally inaccurate or omitted information, there will be a 90-day safe harbor window to correct the report. The bad news is that the penalty for willfully refusing to report, or willfully reporting false information, is hefty – up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.

 

Where Can I Get More Information About This Requirement?

FinCEN has released a Small Entity Compliance Guide for BOI Reporting Requirements which can be found at https://www.fincen.gov/boi

 

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