FinCEN Beneficial Ownership Reporting: New Federal Regulation Affecting Corporations, Limited Liability Companies and Other Entities
November 20, 2023
New Beneficial Ownership Reporting Requirements will take effect on January 1, 2024.
The beneficial ownership information reporting requirements (“BOI Reporting Rule”) issued by the Financial Crimes Enforcement Network (FinCEN) pursuant to the Corporate Transparency Act will take effect on January 1, 2024. FinCEN’s stated purpose for the BOI Reporting Rule is “to unmask shell companies and protect the U.S. financial system from abuse by money launderers, drug traffickers, sanctioned oligarchs, and other criminals”.
Who is required to report?
The BOI Reporting Rule casts a very wide net. The BOI Reporting Rule requires all “reporting companies” to report information about their beneficial ownership to FinCEN. “Reporting companies” include all corporations, limited liability companies and other entities (whether for-profit, non-profit[i], professional or otherwise) created by filing a document with a secretary of state or similar office, unless a specific exemption applies.
Accordingly, you should start with the assumption that your entity is required to report beneficial ownership information to FinCEN and then determine whether your entity meets the criteria of an exemption. Unlike many Federal Regulations, the exemptions are not designed to exempt small businesses.
The specific exemptions are set forth in Section (c)(2) (Exemptions) of the BOI Reporting Rule (31 CFR 1010.380). FinCEN has published a Small Entity Compliance Guide (available at: https://www.fincen.gov/boi/small-entity-compliance-guide) to assist with compliance. Section 1.1 and Section 1.2 of the Small Entity Compliance Guide include information to assist with determining whether an entity is required to report beneficial ownership information to FinCEN.
What is beneficial ownership?
Beneficial ownership under the BOI Reporting Rule refers to individuals that directly or indirectly either (1) exercise substantial control over the entity (including, but not necessarily limited to, senior officers and members of the board or other governing body) or (2) own or control at least 25% of the ownership interests of the entity.
What beneficial ownership information must be disclosed?
Reporting companies must submit the following for each of its beneficial owners: (A) individual’s full legal name, (B) individual’s date of birth, (C) individual’s current residential address, and (D) a unique identifying number from the individual’s non-expired passport, driver’s license or other government issued identification document, as well as a copy of that passport, license of other identification document.
Individual FinCEN Identifiers
Individuals may separately apply to FinCEN to obtain a unique FinCEN identifier. A reporting company may provide the FinCEN identifier of a beneficial owner, rather than collecting and reporting specific information for that beneficial owner (e.g., date of birth, address and copy of driver’s license or passport). FinCEN has suggested that the individual FinCEN identifier option may assist with data security and administrative efficiency, particularly for individuals that are beneficial owners in more than one reporting company.
- FinCEN will not accept reports prior to January 1, 2024.
- Reporting companies created on or after January 1, 2024 must file their initial report with FinCEN within 30 calendar days[ii] of receiving actual or public notice that its creation has become effective. Generally, this will mean within 30 days of the effective date of the formation document (for example, articles of incorporation or certificate of organization) filed with the secretary of state or similar office.
- Reporting companies created prior to January 1, 2024 must file their initial report with FinCEN by no later than January 1, 2025.
- After an initial report has been filed, reporting companies must file an updated report with FinCEN reflecting any change to the information contained in its prior report, with such updated report being due within 30 calendar days of such change.
- If a reporting company becomes aware, or has a reason to know, of an inaccuracy in previously reported information, it must file a corrected report within 30 calendar days.
How to Report
Reporting companies will submit beneficial ownership information to FinCEN utilizing a form and website established by FinCEN. FinCEN has published a draft form but the final form has not been published and the filing website is not yet available. Accordingly, there is uncertainty regarding the ‘ins and outs’ of reporting.
Failure to comply with the BOI Reporting Rule may result in substantial penalties. Depending on the nature of the non-compliance, penalties for non-compliance include civil penalties of up to $500 for each day that a violation has not been remedied as well as criminal penalties of up to $10,000 and/or imprisonment of up to two years.
FinCEN has established a beneficial ownership reporting webpage at https://www.fincen.gov/boi. This webpage includes links to:
- “Small Business Resources” – which include FAQs and a Small Entity Compliance Guide prepared by FinCEN.
- “Reference Materials” – which include the actual text of the BOI Reporting Rule (31 CFR 1010.380) as well as FinCEN’s draft beneficial ownership reporting form (https://www.federalregister.gov/public-inspection/2023-21293/agency-information-collection-activities-proposals-submissions-and-approvals-beneficial-ownership) and draft individual FinCEN identifier application (https://www.federalregister.gov/public-inspection/2023-21325/agency-information-collection-activities-proposals-submissions-and-approvals-individual-fincen)
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[i] The exemption set forth in Section (c)(2)(xix) (Tax-exempt entity) of the BOI Reporting Rule provides an exemption for certain types of tax-exempt non-profit entities.
[ii] FinCEN has proposed a rule to change this deadline from 30 calendar days to 90 calendar days for reporting companies created on or after January 1, 2024 but before January 1, 2025. However, that rule has not yet been adopted.