Beginning on January 1, 2024, many companies in the United States will have to report information about their beneficial owners, the individuals who ultimately own or control a company (“reporting companies”). This information will be submitted to the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Treasury.[1]
Many of our clients have set up “reporting companies” and are “beneficial owners” so we encourage all of our clients to read the following information carefully. For more detailed information, we refer you to the FinCEN FAQS (https://www.fincen.gov/boi-faqs).
- What are reporting companies? Companies required to report are called “reporting companies.” There are two types of reporting companies:
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- Domestic reporting companies are corporations, limited liability companies, and any other entity (such as a limited partnership) created by the filing of a document with a secretary of state or any similar office in the United States.[2]
- 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 the reporting requirements. Be sure to review the qualifying criteria before concluding whether or not your company is exempt.
- Who is a beneficial owner? A “beneficial owner” is an individual who either directly or indirectly 1) exercises substantial control over the reporting company, or 2) owns or controls at least 25% of the reporting company’s ownership interests. One of the indicators of substantial control is that the individual has the right to make important decisions. Ownership interest can include equity, membership interest or voting rights. There are five instances in which an individual who is otherwise a beneficial owner qualifies for an exception.[3]
- What are the filing deadlines? 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 company created on or after January 1, 2024 will have 90 calendar days to file its initial report; a company created on or after January 1, 2025 will have 30 calendar days to file its initial report.
- How is the report filed? The report will be filed online. FINCEN will begin accepting beneficial ownership information reports on January 1, 2024. An example of the form to report beneficial ownership information is not yet available. Once available, information about the form will be posted on FinCEN’s beneficial ownership information webpage. There is no fee for filing the report.
- Identification of Company Applicants. Only reporting companies created or registered on or after January 1, 2024 will need to include their company applicants in the report. A company that must report its company applicant will have only up to two individuals who could qualify as company applicants. For example, an accountant or attorney (or an attorney’s paralegal) could be a company applicant depending on their role in the filing. Please refer to the FAQs for more information on identifying a company applicant.
- Who has access to company information? FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.
[1] In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This reporting requirement is 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.
[2] Note that trusts are not reporting companies because they do not file a document with the Secretary of State.
[3] There are five exceptions for when an individual who otherwise would be a beneficial owner of a Reporting Company is exempt: (i) a minor child if the Reporting Company provides information about a parent or legal guardian; (ii) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; (iii) an employee, acting solely as an employee, whose substantial control over or economic benefits from such entity are derived solely from the employment status of the employee and who is not a senior officer; (iv) an individual whose only interest is a future interest through a right of inheritance; and (v) a creditor.
