Who Must Register?
Reporting Companies must file beneficial ownership information (BOI).
There are Two Types of Reporting Companies
- Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
- Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that has registered to do business in the United States by the filing of a document with a secretary of state or any similar office[1].
Which Types of Entities Are Exempt?
There are 23 types of entities that are exempt from the reporting requirements. Some notable exempt companies are Securities reporting issuers, Governmental authorities, Banks, Credit Unions, Depository institution holding companies, and Money Service Businesses among others. Analysis of whether your Company qualifies as an exempt entity must be carefully undertaken.
Who is a “Beneficial Owner”?
The Corporate Transparency Act defines “beneficial owner” in Section 2, which states that the term refers to any natural person who, directly or indirectly, exercises control over a covered entity or has a substantial interest in or receives substantial economic benefits from the assets of the covered entity. This is consistent with the definition found in 46 U.S.C. § 4302, which also defines a “beneficial owner” as a natural person who exercises control over an entity or receives substantial economic benefits from it, with certain exceptions. Several analyses of the Corporate Transparency Act provide further clarification. For example, one analysis defines a “beneficial owner” as any individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company. Another analysis defines “beneficial owner” as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise owns or controls 25% or more of the ownership interest of an entity, or exercises “substantial control” over an entity. However, these analyses do not define “substantial control,” which is important for understanding the full scope of the term “beneficial owner.” The Final Rule issued by FinCEN clarifies the definition of “beneficial owner” by stating that it refers to any individual who, directly or indirectly, either owns or controls at least 25 percent of the ownership interests of a reporting company or exercises substantial control over such reporting company. The Final Rule also defines “substantial control” as the ability to make significant decisions on behalf of the company, serve as a senior officer, or have authority over the appointment or removal of any senior officer or the majority of board members.
Reporting Requirements – “Company Applicants”
A “company applicant” is the individual who directly files the document that creates or registers the company, or the individual who is primarily responsible for directing or controlling the filing. Only reporting companies created or registered on or after January 1, 2024, will need to report their company applicants. Two individuals could qualify as company applicants: the individual who directly files the document that creates or registers the company, and the individual who is primarily responsible for directing or controlling the filing. An accountant or lawyer could be a company applicant, depending on their role in filing the document that creates or registers a reporting company. A company applicant may not be removed from a BOI report even if the company applicant no longer has a relationship with the reporting company.
What Must be Reported?
Reporting companies must report information about themselves, their beneficial owners, and their company applicants (if applicable). More specifically, Reporting companies must report their legal name, trade names, address, jurisdiction of formation or registration, and Taxpayer Identification Number. Reporting companies must report about their beneficial owners, including the individual’s name, date of birth, residential address, and identifying number from an acceptable identification document. Moreover, Reporting companies must report about their company applicants, including the individual’s name, date of birth, address, and identifying number from an acceptable identification document. However, there is no annual reporting requirement, but reporting companies must file an initial BOI report and updated or corrected BOI reports as needed. Reporting companies do not have to report information about their parent or subsidiary companies unless a special reporting rule applies. Note: a reporting company cannot report a P.O. box as its current address. Also, Reporting companies must note that filing a form or report with beneficial ownership information to a state office, financial institution, or the IRS does not meet FinCEN’s BOI reporting obligation.
When do I File the BOI report?
The reporting requirement is effective on January 1, 2024, and FinCEN will begin accepting reports on that date. An initial BOI report should only include the beneficial owners as of the time of filing, and changes should be reported through updated reports.
Some Notable Dates
- January 1, 2024 – Reports will be accepted.
- January 1, 2025 – Reporting companies created or registered to do business before January 1, 2024, must file their initial BOI reports.
- 30-day rule – Reporting companies created or registered on or after January 1, 2025.
- 90-day rule – Reporting companies created or registered on or after January 1, 2024, and before January 1, 2025.
The legal professionals at TALG have experience with a litany of financial regulatory matters and are well-equipped to assist you with any BOI filing inquiries.
