What is BOI / Beneficial Ownership Information?

Effective January 1, 2024, a transformative regulatory landscape has unfolded with the Beneficial Ownership Information Reporting Rule, or BOI, which is a part of the Corporate Transparency Act. This newly instituted regulation brings forth a large change, particularly affecting small business proprietors, who are not exempt from its far-reaching implications. At the heart of this regulatory framework lies the requirement for businesses to disclose beneficial ownership information (BOI), which is information that reveals who owns and controls their businesses. This regulation is meant to curb illegal activity and create more transparency within the business world. BOI reporting is not a voluntary submission, but rather, it is a mandate that is now required by law, although some exemptions do exist. Companies that are required to report BOI and fail to do so could face fines and possible criminal charges. This article will provide you with information on whether or not the Beneficial Ownership Information Reporting Rule applies to your company and, if so, when and how you are required to report.

What is Involved in Reporting Beneficial Ownership Information?

The foundation for BOI reporting requirements can be traced back to the Corporate Transparency Act (CTA), which was enacted to combat a spectrum of illegal activities that threaten the integrity of financial systems and national security. These activities include but are not limited to money laundering, tax fraud, securities and financial fraud, piracy, counterfeiting, drug trafficking, human trafficking, the funding of terrorism, and acts of foreign corruption. While the primary goal of BOI reporting is to create transparency and impede illicit activities, it is crucial to acknowledge that the regulatory landscape, if not navigated with awareness and understanding, may inadvertently penalize small business owners who find themselves unaware or unfamiliar with these stringent requirements.

Who is Required to Report According to the Beneficial Ownership Information Rule?

The beneficial ownership rule requires a "reporting company" to submit both general information and details about beneficial owners. Now, the question is, does this requirement pertain to your business? Initially, you need to ascertain whether your business fits the criteria of a "reporting company." If it does, the subsequent step involves identifying all the individuals considered beneficial owners.

What is a "Reporting Company?"

Under the Beneficial Ownership Information (BOI) reporting requirements, a "reporting company" is defined as a specific type of entity that must report certain information to the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA). The purpose of these reporting requirements is to prevent illegal activities like money laundering, fraud, and terrorism financing by requiring companies to disclose their beneficial owners—the individuals who own or control them.

Key Criteria for a Reporting Company:

Domestic Reporting Companies: Any corporation, limited liability company (LLC), or other similar entity created by the filing of a document with a secretary of state or similar office in the U.S.

Foreign Reporting Companies: Any corporation, LLC, or other similar entity formed under the law of a foreign country that is registered to do business in the U.S.

Exemptions:

There are several exemptions to what is considered a reporting company. Entities like publicly traded companies, regulated financial institutions, large operating companies (with more than 20 employees, over $5 million in gross receipts or sales, and a physical operating presence in the U.S.), and certain governmental entities are excluded from these reporting requirements. Reporting companies are required to submit specific information about their beneficial owners, including full names, birth dates, addresses, and identification numbers from documents like passports or driver's licenses. These regulations, which began to be phased in starting in January 2024, are aimed at increasing transparency in company ownership to combat financial crime.

23 Types of Companies Exempt From BOI Reporting Requirements

Under the Corporate Transparency Act (CTA) and the Beneficial Ownership Information (BOI) reporting requirements, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has identified 23 types of companies that are exempt from the BOI reporting requirements. These exemptions typically apply to entities that are already subject to stringent regulatory oversight or are deemed to pose a low risk for financial crime.

The 23 Types of Exempt Entities are:

1. Securities Issuers: Companies registered with the Securities and Exchange Commission (SEC), including public companies listed on U.S. stock exchanges.
2. Governmental Authorities: Any entity that is a U.S. federal, state, or local government agency or a political subdivision thereof.
3. Banks: Banks regulated by federal or state authorities, such as those registered under the Bank Holding Company Act of 1956 or chartered under federal or state law.
4. Credit Unions: Federally or state-chartered credit unions. Depository Institution Holding Companies: Holding companies regulated under the Bank Holding Company Act or the Savings and Loan Holding Company Act.
5. Money Services Businesses (MSBs): Entities registered with FinCEN as money services businesses under the Bank Secrecy Act.
6. Broker-Dealers:Companies registered with the SEC under the Securities Exchange Act of 1934 as broker-dealers.
7. Investment Companies: Registered investment companies under the Investment Company Act of 1940.
8. Investment Advisers: Registered investment advisers under the Investment Advisers Act of 1940.
9. Insurance Companies: Entities regulated by a state insurance commissioner, supervisor, or agency.
10. State-Licensed Insurance Producers: Licensed insurance producers authorized to act on behalf of insurance companies.
11. Public Accounting Firms: Firms registered as public accounting firms under the Sarbanes-Oxley Act of 2002.
12. Public Utilities: Entities regulated by a state or federal authority as a public utility.
13. Financial Market Utilities: Entities registered with the Financial Stability Oversight Council as financial market utilities.
14. Pooled Investment Vehicles: Entities operating as pooled investment vehicles advised by banks, SEC-registered investment companies, or investment advisers.
15. Tax-Exempt Entities: Nonprofit organizations, charitable trusts, and other entities described in section 501(c) of the Internal Revenue Code, as well as those that file IRS Form 990.
16. Entities Assisting Tax-Exempt Entities: Subsidiaries or affiliates of tax-exempt entities.
17. Large Operating Companies: Entities that meet all three of the following criteria:
    More than 20 full-time employees in the U.S.
    More than $5 million in gross receipts or sales in the previous year.
    Physical operating presence in the U.S.
18. Subsidiaries of Certain Exempt Entities: Entities wholly owned by one or more of the exempt entities listed in these exemptions.
19. Inactive Entities: Entities in existence for over 12 months that are not engaged in active business, do not own foreign assets, and have not undergone changes in ownership within that time.
20. Certain Trusts: Trusts that do not engage in business and whose assets are entirely held by an exempt entity. Insurance Holding Companies: These are insurance holding companies regulated by a state insurance regulator.
21. Commodity Brokers: Entities that are registered with the Commodity Futures Trading Commission (CFTC) as a commodity broker or are involved in futures trading.

These exemptions are designed to limit the BOI reporting requirements to entities that are more likely to be used for illicit purposes, while entities that are already subject to stringent regulation and reporting rules are excluded.

Who Qualifies as a Beneficial Owner?

A beneficial owner is identified as an individual who, either directly or indirectly, engages in either of the following activities.

1. Wields significant control over the reporting company, which may include roles held by senior officers (the company president), individuals who have appointment or removal authorities, and key decision-makers.
2. Owns or controls a minimum of 25% of the reporting company's ownership interests, including shares of equity, stock, voting rights, and capital or profit interest.

It's important to note that the classification of the beneficial owner does not encompass all individuals. The following individuals are not required to be reported as beneficial owners:

• Minor Child (a minor as defined by the jurisdiction where the company was first created or registered) Instead, for exemption purposes, reporting should be directed towards the minor child's parent or legal guardian. However, reporting the minor child becomes necessary once they are considered no longer a minor.
• Nominee, Intermediary, Custodian, or Agent (for instance, an individual acting on behalf of a beneficial owner, like a tax professional, does not require reporting). The emphasis in reporting should be on identifying the genuine beneficial owner, not the person representing them.
• Employee (individuals whose work is directed and controlled by their employer) Employees can be exempt as long as they do not hold senior officer positions and their significant influence over the reporting company is solely derived from their employment status.
• Inheritor (an individual with a prospective stake in the business solely through a right of inheritance) Reporting the inheritor as a beneficial owner may become necessary once they inherit the interest.
• Creditor (An individual who receives payment from the business to settle a loan or debt.) This exclusion is relevant only when the creditor's entitlement to payment for a debt or loan comprises their sole ownership interest in the reporting company.

It's crucial to understand that FinCEN has specific regulations regarding beneficial owner exemptions. For comprehensive information on these exceptions, again, it is advisable to refer to FinCEN's Small Entity Compliance Guide.

How Can You Submit Your BOI Report?

To file your BOI report, you can now file your BOIR with InCorp and submit it electronically.

BOI Reporting Deadline

If you need to submit a BOI report, it is important to ensure timely filing to prevent issues resulting from noncompliance. Your specific deadline will depend on your business creation or registration date

1. For Newly Established or Registered Companies Created After January 1, 2024: Submit the report within 90 days of receiving confirmation that your registration has become effective.
2. For Companies Established or Registered before January 1, 2024: Submit your BOI report no later than January 1, 2025.

Conclusion:

The BOI Reporting Requirements present a significant change to the business world's regulatory landscape. However, it's important for businesses to follow this regulation in order to stay compliant and avoid any fees, penalties, or any other unnecessary business disruptions or legal consequences. InCorp stands as a trusted partner to help our clients understand and comply with this new federal regulation.

Learn More in Related Help Articles:

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