What Companies, Including Small Businesses, Need To Know About A New Federal Law

Starting Jan. 1, 2024, many companies will be required to report information to the U.S. government about who ultimately owns and controls them. It’s the result of a 2021 law, the Corporate Transparency Act—or CTA—which requires reporting companies to file reports with FinCEN, the Financial Crimes Enforcement Network. The form isn’t yet available, but FinCEN has been rolling out guidance—including new information posted as of Dec. 12, 2023. Here’s what we know so far.

Who has to report?

Companies required to report are called reporting companies. Your company may be a reporting company and need to report information about its beneficial owners if your company is a corporation, a limited liability company (LLC), or other entity created by the filing of a document with a secretary of state or any similar office in the U.S., or a foreign company formed under the law of a foreign country that has registered to do business in the U.S. by filing of a document with a secretary of state or any similar office.

A domestic entity like a statutory trust, business trust, or foundation is a reporting company if it was created by filing a document with a secretary of state or similar office. The specifics of whether certain entity types, such as trusts, require filing a document with the secretary of state or similar office to be created or registered depend on state law.

Is a sole proprietor a reporting company?

No, unless a sole proprietorship was created (or, if a foreign sole proprietorship, registered to do business) in the U.S. by filing a document with a secretary of state or similar office. A good rule of thumb? A company qualifies as a reporting company if it was created (or, if it’s a foreign company, it registered to do business) in the U.S. by filing a document with a secretary of state or similar office.

Will filing a fictitious business name make me a reporting company?

No, filing a document with a government agency to obtain an IRS employer identification number, a fictitious business name, or a professional or occupational license does not create a new entity, or turn a sole proprietorship into a reporting company.

Who does not have to report?

There are several exemptions. In fact, 23 types of entities are exempt from the beneficial ownership information (BOI) reporting requirements. These entities include publicly traded companies, nonprofits, and certain large operating companies. You can check FinCEN’s Small Entity Compliance Guide for a checklist that may help determine whether your company qualifies for an exemption.

How can I report?

You’ll file online. The form to report beneficial ownership information is not yet available. Information about the form will be posted on FinCEN’s beneficial ownership information webpage.

What do I have to report?

The report must identify the company, including its legal name and any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names, as well as the physical address of the company (no post office boxes), jurisdiction of formation or registration, and Taxpayer Identification Number (if a foreign reporting company has not been issued a TIN, include a tax identification number issued by a foreign jurisdiction).

The report must also include four pieces of information about each of its beneficial owners: name, date of birth, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and a scanned image of the document)—that could include a driver’s license or passport.

If a company has to report a company applicant, the report will also include the company applicant’s name, date of birth, address, and an identifying number from an acceptable identification document (and a scanned image of the document) like a passport or U.S. driver’s license. If the company applicant works in corporate formation—for example, as an attorney or corporate formation agent—the reporting company must report the company applicant’s business address. Otherwise, the reporting company must report the company applicant’s home address.

No financial information or details about the business purpose or operation of the company are required.

Who is a beneficial owner?

A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s ownership interests (examples include shares of equity, stock, voting rights, or any other mechanism used to establish ownership).

What constitutes substantial control?

FinCEN says that an individual can exercise substantial control over a reporting company in four different ways:

  1. The individual is a senior officer (examples include a president, CEO CFO, COO, or general counsel); OR
  2. The individual has the authority to appoint or remove officers or a majority of directors (or similar body) of the reporting company; OR
  3. The individual is an important decision-maker for the reporting company (meaning one who makes decisions about business, finances, and structure); OR
  4. The individual has any other form of substantial control over the reporting company as outlined in FinCEN’s Small Entity Compliance Guide.

Who else may have to file?

Company applicants may also have to file. A company that must report its company applicants will have only up to two individuals who could qualify:

  1. The individual who directly files the document that creates or registers the company; and
  2. If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.

Only reporting companies created or registered on or after Jan. 1, 2024, will need to report their company applicants. A reporting company that is required to report a company applicant is not required to file an updated BOI report if information about the company applicant changes.

An accountant, lawyer, paralegal, or other professional could be a company applicant, depending on their role in filing the document that creates or registers a reporting company.

The reporting requirements apply to people, so you may need to look through to find the human being.

When do I report?

A reporting company created or registered to do business before Jan. 1, 2024, will have until Jan. 1, 2025, to file its initial report.

A reporting company created or registered on or after Jan. 1, 2024, and before Jan. 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial report. For purposes of the deadline, the clock starts runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of the reporting company’s creation or registration, whichever is earlier.

Reporting companies created or registered on or after Jan. 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial reports with FinCEN.

The date of creation or registration for a reporting company is the earlier of the date on which the reporting company receives actual notice of the reporting company’s creation (or registration), or when a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the reporting company has been created (or registered).

Do I have to report more than once?

You only have to file an initial report once. This isn’t an annual report.

However, if you have any updates or corrections to information you previously filed with FinCEN, you must submit those changes within 30 days. Those changes could include registering a new business name, a change in beneficial owners (like a new CEO, or a change in ownership interest), or any change to a beneficial owner’s name, address, or unique identifying number previously provided. If a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the reporting company would have to file an updated report, including an image of the new identifying document.

Can I file the initial report early?

No. You can’t file until Jan. 1, 2024. FinCEN is currently not accepting any beneficial ownership information reports.

Will it cost me anything?

There’s no fee to file the report with FinCEN. However, if you retain a tax or legal professional to help you file, you’ll be responsible for paying those fees.

Do I need to use a tax or legal professional to report?

No. You can use anyone authorized to act on behalf of the company, including an employee, owner, or a tax or legal professional.

What happens if I don’t file a report?

You could land yourself in trouble. A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 for each day the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

What happens if the beneficial owners don’t cooperate?

So far, there’s no wiggle on this. According to FinCEN, reporting companies are responsible for ensuring that they submit complete and accurate beneficial ownership information to FinCEN. They advise that persons considering creating or registering legal entities that will be reporting companies take steps to ensure they have access to the BOI required to be reported to FinCEN.

Who has access to the reports?

According to its website, FinCEN will permit federal, state, local, and tribal officials and certain foreign officials who submit a request through a U.S. federal government agency to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will also have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.

Beyond that, FinCEN is developing rules that will govern access to and handling of beneficial ownership information.

I’m worried about giving out my data—should I be concerned about scams?

FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA. Such scams may be titled “Important Compliance Notice” and will ask you to click on a URL or scan a QR code to comply. Don’t click or scan—those emails or letters are fraudulent, and FinCEN does not send unsolicited requests.

Your best bet is to work with trusted sources.

Can I refer to the report as Big-BOI? Or BOI-wonder?

You could, but I would urge you not to (BOI band jokes, however, are welcome).

How can I find out more?

FinCEN has a BOI webpage, www.fincen.gov/boi. You can also subscribe here to receive updates via email from FinCEN about BOI reporting obligations.

And, of course, the Forbes tax teams will continue to provide updates.

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