Effective January 1, 2024, U.S. and foreign entities doing business in the U.S. may be required to disclose information regarding their beneficial owners to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This requirement is being implemented under the beneficial ownership information (BOI) reporting provisions of the Corporate Transparency Act (CTA) passed by Congress in 2021.
Who is Impacted?
Companies are required to report BOI information only when they meet the definition of a “reporting company” and do not qualify for an exemption. A domestic reporting company would generally include a corporation, limited liability company (LLC), and companies created by filing documents with a secretary of state, such as a limited liability partnership, business trust, and other limited partnerships. The term “foreign reporting company” generally includes entities formed under the law of a foreign country that are registered to do business in any U.S. state.
Reporting companies created or registered to do business in the U.S. after January 1, 2024, must file an initial report disclosing the identities and information regarding their beneficial owners within 30 days of creation or registration (FinCEN has recently proposed extending this deadline to 90 days). A beneficial owner is broadly defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. Reporting companies are required to file a BOI report electronically through a secure filing system, FinCEN’s BOI E-Filing System, which began accepting reports on January 1, 2024.
Reporting companies created or registered to do business in the U.S. prior to January 1, 2024, are required to file an initial report by January 1, 2025. Once the initial report is filed, an updated BOI report must be filed within 30 days of a change. The failure to make required BOI filings may result in both civil (monetary) and criminal penalties.
Who is Exempt?
There are 23 specific types of entities that are exempt from the new BOI reporting requirement. Most exemptions apply to entities that are already subject to substantial federal reporting requirements, such as some public companies, banks, securities brokers and dealers, insurance companies, registered investment companies and advisors, and pooled investment companies.
An exemption is also available for a “large operating company,” generally defined as a company with more than 20 full-time employees, a physical office within the U.S., and more than USD 5 million in gross receipts or sales from U.S. sources (as shown on a filed federal income tax or information return).
Every company doing business in the U.S. will need to determine whether it is subject to BOI reporting or whether an exemption applies. Because many of the exemptions depend on an entity’s legal status under various statutes (e.g., the Securities Exchange Act, the Investment Company Act), coordination and confirmation with counsel may be necessary. Further, companies that are eligible for exemption will need to implement processes to continuously assess eligibility for the exemption.
Companies that are subject to BOI reporting will need to implement processes to identify its beneficial owners and gather the information necessary to file the required BOI report. For some entities, operating agreements, subscription agreements, and similar documents may need to be reviewed to take into account the new BOI disclosure obligations. Further, because the definition of beneficial owners includes not only shareholders but senior officers and important decision-makers within the reporting company, processes to identify changes in leadership or key management will need to be considered to comply with BOI reporting obligations going forward.
The new BOI reporting requirements are mandated under Title 31 of the U.S. Code. The new rules include the legal requirements of who must file, exemptions from filing, and the information to be reported. Because the information to be reported on this form arises from determinations that are primarily legal in nature, companies should begin working with their counsel to proactively assess their filing obligations under the new BOI reporting rules.
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