What are the Beneficial Ownership Information Requirements?

Beneficial ownership information (or BOI) references information that identifies individuals who directly or indirectly own or control a company. Effective January 1, 2024, many companies will be required to report this information to the U.S. government about who ultimately owns and controls them. Beneficial owners are defined as individuals who either directly or indirectly wield substantial control over the reporting company or own or control at least 25% of the reporting company's equity interests. There are a total of 23 types of entities that are considered exempt from the beneficial ownership information reporting requirements, including publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies. For each beneficial owner of a company, the reporting company will have to provide information such as the individual's legal name, birth date, home address, an identifying number from a driver's license, state I.D., or passport, and an image of the document that the number is from. BOI reports will be submitted electronically through the FinCEN (Financial Crimes Enforcement Network), a bureau of the U.S. Treasury Department.

A large number of businesses, both large and small, will be mandated to submit BOI reports. Businesses that are required to report BOI but fail to do so may face penalties or other legal consequences, including possible jail time. Therefore, it is critical for businesses to adhere to the requirements. This article will highlight the Beneficial Ownership Information requirements that businesses must meet in order to stay compliant with this regulation.

What is the Purpose of Beneficial Ownership Information Reporting?

The new beneficial ownership information reporting regulation presents new challenges for businesses in the regulatory landscape, but it is not without good reason. The purpose of beneficial ownership information reporting is to help prevent the creation of anonymous shell companies and to combat money laundering and other illegal activities, including acts of foreign corruption and the financing of terrorist organizations. This reporting requirement, stemming from the Corporate Transparency Act, aims to require those with control over businesses or legal entities to provide identifying information, ultimately increasing transparency and accountability in corporate structures. By identifying the individuals who directly or indirectly own or control a company, the reporting helps law enforcement and regulatory agencies with their efforts to combat illicit financial activities.

What Companies are Subject to BOI Reporting?

Companies that must provide BOI reports are referred to as "Reporting Companies." There are two primary classifications of entities obligated to submit BOI reports to FinCEN: domestic reporting companies and foreign reporting companies. These encompass a broad spectrum of legal entities established or registered for business activities in the United States, ranging from corporations, LLCs, LLPs, LLLPs, partnerships, and specific trust types to any other entity eligible for registration with a secretary of state's office.>

• Domestic Reporting Companies: A domestic reporting company pertains to any entity, such as a corporation, limited liability company, or other organizational form, established through the filing of documents with a secretary of state or a similar office in compliance with the laws of a state or Native American tribe.
• Foreign Reporting Companies: A foreign reporting company is an entity, including corporations, limited liability companies, or other organizational forms, established under the laws of a foreign nation and is registered for business operations in any state or tribal jurisdiction through the filing of documents with a secretary of state or a comparable office under the laws of a state or Native American tribe.

It's important to note that specific exemptions from the reporting company definition exist under the Corporate Transparency Act (CTA).

What Information is Required of Reporting Companies?

The regulation outlines the specific details a reporting company must provide. Initially, the reporting company is required to disclose information regarding the identity of the company, encompassing the following details:

• Legal Name
• Any Trade Names
• Current Address of the Principal Place of Business
• The Jurisdiction of its Formation
• Tax ID Number

Additionally, the reporting company is obligated to furnish information to FinCEN pertaining to each Beneficial Owner (as defined in accordance with the provided guidance) and Company Applicant (if established after January 1, 2024). This information includes:

• The name, birth date, and address of each beneficial owner and company applicant.
• Identification number from an acceptable form of identification (for example, a non-expired U.S. driver's license or passport) and the name of the jurisdiction in which it was issued.
• An image of the approved form of identification substantiating the accuracy of the provided information, among other details.

What Constitutes a "Beneficial Owner" According to the Rule?

The regulation outlines a "beneficial owner" as a person who, either directly or indirectly, satisfies at minimum one of two criteria: (1) exerting substantial control over the reporting company or (2) possessing ownership or control of a minimum of 25% of the ownership interest in the reporting company.

Please note that some beneficial owner exemptions do exist. For the specific rules and more information regarding beneficial owner exemptions, please view FinCEN's Small Entity Compliance Guide. Additionally, what is considered "substantial control" and "ownership interest" is also further defined within FinCEN's Small Entity Compliance Guide.

Who is the "Company Applicant," and When Does their Specific Information Need to Be Reported?

In cases where your business is established or registered on the day of or after January 1, 2024, it is imperative to provide details about the company applicant. The company applicant is the individual responsible for filing the document that brings the company into existence, or in other words, the person who registers it with the state. You have the option to report details for up to two company applicants. If multiple individuals were involved in the filing, make sure to include the persons primarily accountable for directing or controlling the filing.

Include the following information about the company applicant or company applicants:

• Name
• Date of Birth
• Address
• Identifying number from an acceptable form of identification (passport or valid U.S. driver's license) and the name of the jurisdiction that issued it.
• Image of the acceptable form of identification.

What is the BOI Report Deadline?

For those who are required to submit a BOI report, please ensure that you allow yourself enough time to file your report on time in order to avoid unnecessary issues and complications due to non-compliance. Your BOI report deadline hinges on when your business was created or registered.

1. Newly established companies that were registered after January 1, 2024, will need to submit their BOI report within 90 days of the confirmation of effective registration.
2. Companies that were established or registered before January 1, 2024, must submit their BOI report no later than January 1, 2025.

Please note that you only need to submit your BOI report once, and it is not an annual occurrence. However, in the case that you need to update any information in your report due to changes in your business or correct any errors, you must submit an updated BOI report to ensure accurate records of your business are on file.

Conclusion:

The Beneficial Ownership Information reporting requirements will change the way companies interact with regulatory and compliance matters. More diligent efforts will need to be made in order to comply with the BOI regulations, especially on behalf of smaller companies that may not have a dedicated team of legal experts or a robust system of compliance management protocols and highly organized record keeping. These challenges are not unmanageable, though. InCorp is poised to assist companies in understanding and meeting these requirements to ensure businesses can stay in compliance and good standing as they continue to progress towards their intended goals.

Learn More in Related Help Articles:

• What is the Difference Between a Beneficial Owner and a Shareholder and Whose Information Needs to be Provided in BOI Reporting?
• What is BOI / Beneficial Ownership Information?