What you Need to Know about Beneficial Ownership Information Reporting for your Business

With the new year comes the Financial Crimes Enforcement Network’s (FinCEN) implementation of the Corporate Transparency Act’s (CTA) Beneficial Ownership Information (BOI) reporting provisions. Starting January 1, 2024, most United States (U.S.) entities must report information about the beneficial owners of their businesses to strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder their money or hide assets. This blog article explores the key elements of the BOI reporting rule and what actions your business needs to take.

Who has to report?

A business subject to the BOI reporting rules is called a “reporting company.” A reporting company will fall into one of two buckets:

Domestic Reporting Company: A business entity that is a Corporation, Limited Liability Company (LLC), or was otherwise created in the U.S. by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Foreign Reporting Company: A foreign business entity registered to do business in any U.S. state or Indian tribe by such a filing.

For the purposes of this article, we will only focus on domestic reporting companies. While most businesses with an entity structure (i.e., LLC, partnership, C or S Corporation) will be required to report, there are 23 specific exemptions provided in the reporting rule. Most exemptions are for entities that operate in an industry that is already heavily regulated by Federal or state authorities. For example, banks, credit unions, accounting firms, public utilities, insurance companies and investment advisors all have an exemption under the rules. Within our agricultural client base, there are a few other exemptions that may be applicable that we will discuss in more detail.

Exemption Short Title	Exempt If
Commodity Exchange Act registered entity	“Registered Entity” as defined by the Commodity Exchange Act; OR Registered with the Commodity Futures Trading Commission as a: futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, commodity trading advisor, or retail foreign exchange dealer
Tax-exempt entity	501(c) charitable organization; OR 527(e)(1) political organization; OR Trust as described in section 4947(a)
Large operating company	Entity employs more than 20 Full Time Employees (FTEs); AND More than 20 FTEs are employed in the U.S.; AND Entity has a physical office in the U.S.; AND Previous year tax return demonstrates more than $5,000,000 in gross receipts; AND The entity reported the over $5,000,000 as gross receipts (net of returns and allowances) on the proper IRS tax form; AND When gross receipts from outside the U.S. are excluded, the entity still has over $5,000,000
Inactive entity	Formed on or before Jan 1, 2020; AND Not engaged in active business; AND Entity is not owned by a foreign person; AND Entity has not experienced a change in ownership in preceding 12-month period; AND Entity has not sent or received funds greater than $1,000 through a bank account in the preceding 12-month period; AND The entity does not hold any kind of type of assets worldwide, including ownership interest in another entity

Who is a beneficial owner of my company?

If you have a reporting company that is not eligible for an exemption, you must identify the company’s beneficial owners. A beneficial owner is any individual who, directly or indirectly, exercises substantial control over the reporting company; or owns/controls at least 25% of the ownership interests of the reporting company.

Looking to the first of the either-or test, substantial control means an individual meets any of four general criteria:

The individual is a senior officer (ex. President, CFO, CEO, COO)
The individual has authority to appoint or remove certain officers or a majority of directors;
The individual is an important decision maker (influence over business ventures, finances, structure);
The individual has any other form of substantial control (catch-all for new and unique ways a company could be organized).

You’ll note that these criteria are independent of what we may traditionally consider to be economic ownership. A reporting company could have a senior officer that is not an economic owner of the business, but still be considered a beneficial owner for these reporting requirements.

For the second part of the test, an ownership interest includes equity, stock, voting rights, a capital or profit interest, convertible instruments, options to buy or sell any of the foregoing, or any other mechanism used to establish ownership. Many reporting companies may have multiple ownership interest types that would require an individual to be identified as a beneficial owner.

When do I have to file?

Reporting companies that are in existence as of December 31, 2023, will have one full year to file their BOI report between January 1, 2024 and December 31, 2024. This will be a one-time filing unless there are future changes to any information. If there is any change to the required information about the company or its beneficial owners in a BOI report that was filed, the company must file an updated BOI report no later than 30 days after the change. According to the BOI small compliance guide, the following are examples of changes that would require an updated BOI report:

Any change to the information reported for the reporting company, such as registering a new DBA.

A change in beneficial owners, such as a new Chief Executive Officer, a sale that changes who meets the ownership interest threshold of 25%, or the death of a beneficial owner.

Note: When a beneficial owner dies, resulting in changes to the reporting company’s beneficial owners, report those changes within 30 days of when the deceased beneficial owner’s estate is settled. The updated report should, to the extent appropriate, identify any new beneficial owners.

Any change to a beneficial owner’s name, address or unique identifying number provided in a BOI report.

Note: If a beneficial owner obtained a new driver’s license or other identifying document that includes the changed name, address or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.

For reporting companies that are created or registered to do business in the U.S. during the 2024 calendar year, the report will be due within 90 days of the company receiving the actual or public notice that the entity creation or registration is effective, whichever is earlier. For reporting companies created on or after January 1, 2025, the report will be due within 30 days.

The willful failure to report complete or updated BOI information to FinCEN in the required timeframes may result in civil or criminal penalties. Civil penalties are currently authorized of up to $500 per day that the violation continues, and criminal penalties may include imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that is required to file a BOI report may be held accountable for these failures.

What do I need to provide in the report?

The BOI reporting requirements request information on both the company and each of the beneficial owners:

Company	Each Beneficial Owner
Full legal name	Full legal name
Any trade names used by the company (DBA)	Date of birth
Street address of the company’s principal place of business	Current residential street address
The jurisdiction in which the company was formed or registered	Identifying number from a non-expired government issued photo ID (passport, driver’s license) along with name of the issuing state
Taxpayer Identification Number (EIN)	An image of the government-issued photo ID from which the number was provided

A beneficial owner of a reporting company may obtain a FinCEN identifier in lieu of providing the information above to their reporting company. The beneficial owner would have to first provide all the required information to FinCEN directly before receiving the identifier. This is not required but may be preferred by some individuals in certain business structures.

Additionally, companies that are created on or after January 1, 2024, will have to report something known as the “company applicant.” Company applicants include (1) the individual who directly files the document that creates or first registers the reporting company; and (2) the individual that is primarily responsible for directly or controlling the filing of the relevant document.

Reporting Summary

With the hefty potential penalties, it is important that every business evaluate the BOI reporting requirements for their situation and determine how to move forward with filing the relevant reports. For many small or closely held businesses, the reporting will be straightforward. FinCEN has compiled a Small Entity Compliance guide to help a business evaluate the applicability of exemptions and explain the full reporting process in detail (BOI Small Compliance Guide v1.1 (fincen.gov)).

A reporting company will be able to visit the FinCEN BOI website (https://boiefiling.fincen.gov) to file their report online.

States following suit

New York Governor Kathy Hochul recently signed an amended version of the state’s LLC Transparency Act which largely mirrors FinCEN’s BOI reporting but is applicable only to LLCs formed in the state.

The original bill, like the CTA, was presented as an anti-money laundering and anti-corruption measure but would have provided for a public database of the beneficial owner information, but that provision was removed before reaching the governor’s desk. The NYS reporting requirements will take effect in late 2024.

Similar version of this bill, some including the public database provision, have been introduced in California and Massachusetts. It will be important for all businesses to monitor progress in their states to ensure their compliance with new legislation as it arises.

Tags: business management, farm management, tax planning