Effective January 1, 2024, both U.S. and foreign entities conducting business in the U.S. may be required to disclose information about 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) which was enacted by Congress in 2021.

For a comprehensive understanding of the BOI reporting requirements, we recommend reviewing the guidelines available here. Additionally, it is worth noting that New York State has passed a similar law imposing filing requirements and it is anticipated that other jurisdictions could consider the implementation of comparable legislation.

Executive Summary:

• Passed by Congress in 2021, the Corporate Transparency Act creates a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. BOI refers to identifying information about the individuals who directly or indirectly own or control a company.
• Filing date requirements:
  • A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report.
  • A reporting company created or registered on or after January 1, 2024, will have 90 days to file its initial beneficial ownership information report.
  • Any changes to the BOI requires an updated filing within 30 days after a change occurs, including something simple like an address change to an owner.
  • The penalties are substantial – Civil penalties up to $500 per day of violation, and Criminal Penalties up to $10,000/2 years of imprisonment
• 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 have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
  • There are 23 types of entities that are exempt from reporting requirements and many of the exemptions depend on an entity’s legal status under various statutes. Companies must continue to monitor their exemption status to assess that they remain eligible for the exemption.
• When a company has determined that it is an eligible reporting entity, then it must determine who are the beneficial owners. A reporting company can also be a trust or foundation depending on how it was created and related filings.
  • A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control (as defined in the regulations and does not need to be an owner) over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.
• The Company will have to report information about its beneficial owners as well as the applicant. This information includes names, dates of birth, address and an identifying number and must also upload the image from that identifying document which must be non-expired, including State ID, US Driver’s License, or Passport.

What should responsible parties be considering now?

The new rules encompass legal obligations concerning who must file, exemptions from filing, and the timelines for reporting this information. Given that the data to be reported on the FinCEN form arises from determinations that are primarily of a legal nature, we strongly advise clients to collaborate with their legal counsel. This proactive approach will help in assessing filing obligations and implementing procedures related to the collection of pertinent ownership information in accordance with the new BOI reporting rules.