When it comes to the government adding increasingly cumbersome layers of compliance for businesses, it’s enough to say “Oh, boy!” or for 2024 it’s more like “Oh, Boi!” as many business owners of all sizes will be required to file the newly created Beneficial Ownership Information (BOI) form this year.

“The Department has prioritized efforts to implement the Corporate Transparency Act (CTA) to prevent corrupt and other actors from laundering illicit funds through anonymous companies in the United States. This effort will equip law enforcement and other partners with the information they need to disrupt financial anonymity that enables crimes such as corruption, drug trafficking, and terrorism,” explained the U.S. Treasury Department in a December 11, 2023 release. “Enacted by Congress in 2021, the CTA requires many companies formed or operating in the United States to report information about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN), which will store this sensitive information in a secure, confidential database.”

Far from targeting only high-flying purveyors of complex shell companies, even mom-and-pop Mainstreet small businesses have new paperwork to do or risk falling out of compliance with the new legislation.

“The Corporate Transparency Act (CTA) is going into effect on January 1, 2024, impacting millions of small businesses across the U.S.,” reports the U.S. Chamber of Commerce. “Knowing the intricacies of this act and its potential impact is essential for small businesses. Otherwise, they may incur criminal or civil penalties for not filing or updating this report.”

Basically, if you run or have an ownership interest in a domestic company that was registered through your secretary of state as a limited liability company (LLC), corporation, or other similar entity, then you need to read on.

Understanding the Corporate Transparency Act (CTA)

After the Corporate Transparency Act (CTA) was passed by Congress in 2021, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued the beneficial ownership information (BOI) reporting rule in September 2022.

“Today’s announcement is a major step forward in giving law enforcement, national security agencies, and other partners the information they need to crack down on criminals, corrupt individuals, and other bad actors who seek to take advantage of America’s financial system for illicit purposes. This rule builds on years of bipartisan work by Congress, Treasury, national security and law enforcement agencies, and other stakeholders to bolster corporate transparency while minimizing the impact of compliance on honest businesses,” said Secretary of the Treasury Janet L. Yellen when the rule was announced.

The BOI reporting rule describes who must file a BOI report, what information must be reported, and when a report is due. The BOI reporting rule also says:

• Beginning Jan. 1, 2024, reporting companies established before this date will have until Jan. 1, 2025, a full year to submit their initial report.
  
  
• Reporting companies created between Jan. 1, 2024, and Jan. 1, 2025, will have 90 days from actual notice of formation or public announcement (whichever is first) to file their BOI.
  
  
• After Jan. 1, 2025, businesses newly established will have 30 days to file their BOI.
  
  

“According to the CTA, an individual qualifies as a beneficial owner if they directly or indirectly have a significant ownership stake in a company. This person either has a major influence on the reporting company’s decisions or operations, owns at least 25 percent of the company's shares, or has a similar level of control over the company's equity,” said the U.S. Chamber of Commerce. “All reporting companies must provide their legal name and trademarks, as well as their current U.S. address, which could be either the address of its main business site or, for foreign-based companies, their U.S. operational location. They’ll also need to provide a taxpayer identification number and specify the jurisdiction where they were formed or registered.”

The U.S. Chamber of Commerce also highlighted:

• Two types of reporting companies will be required to submit BOI reports: domestic reporting companies, including LLCs, corporations, and other entities formed through filing with a secretary of state or a comparable office in the U.S.; and foreign reporting companies that are registered to conduct business in the United States through filing with a secretary of state or an equivalent office.
  
  
• Businesses will not incur a fee for submitting their reports, and electronic forms will be available on FinCEN’s website.
  
  
• Though no annual reporting requirement has been set, the initial filing period is not the only time you’ll be required to submit information as business owners will need to file updated reports for such things as change of address, legally changing business name, or even obtaining a new driver’s license.
  
  

The U.S. Chamber of Commerce recommends that business owners may want to have an advisor, such as a tax attorney or accountant, file their initial report to make sure it complies with the regulations.

“There are some issues in the law that could require an interpretation of certain facts to determine who is a beneficial owner that must be included in the filings,” Harris said. “If you find yourself in this situation, ... consult with an attorney to help you decide how your set of facts fits within this law,” Roger Harris, President, Padgett Business Services, told the U.S. Chamber of Commerce.

Which Businesses are Exempt from Filing the BOI

The International Association of Commercial Administrators (IACA) says some businesses are exempt from filing a BOI report including:

• The CTA lists 23 categories of entities that are exempt from reporting. View the list of exemptions here: https://www.fincen.gov/boi-faqs
  
  
• Many of the exempt categories are already subject to similar regulation such as banks, credit unions, tax-exempt entities, public utilities, and large operating companies.
  
  
• Business entities that do not fall within the scope of the reporting requirements include sole proprietorships, some general partnerships, foreign entities not registered to do business in the U.S., unincorporated associations, and wealth planning trusts.
  
  
• Tax-exempt entities are also exempt from the CTA filing requirements. These entities include any organization that is described in section 501(c) of the Internal Revenue Code and exempt from tax under section 501(a).
  
  

How do I know if my company is considered a “large operating company”? The IACA says for an entity to qualify as a “large operating company”, the following criteria must be met:

• Employs more than 20 full-time employees in the United States.
  
  
• Has an operating presence at a physical address within the United States.
  
  
• Filed a federal income tax or information return in the United States for the previous year demonstrating more than $5M in gross receipts or sales. This excludes gross receipts or sales from sources outside the United States.
  
  

What Information is Reported on the BOI?

The IACA says the following company information must be provided on your BOI report:

• The legal name of the company.
  
  
• Any trade name (DBA) used by the company.
  
  
• The current street address of its principal place of business. If the principal place of business is not in the U.S., then the company will report the address from which it conducts business in the U.S.
  
  
• Taxpayer identification number (EIN/SSN/ITIN, as appropriate).
  
  

And the following information must be reported for each beneficial owner of the business:

• The individual’s legal name; date of birth and residential street address.
  
  
• A unique identifying number from an acceptable identification document.
  
  
• The name of the state or jurisdiction that issued the acceptable identification document.
  
  
• An image of the acceptable identification document.
  
  

The Treasury Department says that some acceptable forms of identification that will meet the reporting requirements include:

• A non-expired U.S. driver’s license (including any driver’s license issued by a commonwealth, territory, or possession of the United States).
  
  
• A non-expired identification document issued by a U.S. state or local government, or Indian Tribe.
  
  
• A non-expired passport issued by the U.S. government.
  
  
• A non-expired passport issued by a foreign government (only when an individual does not have one of the other three forms of identification listed above).
  
  

Who are Beneficial Owners of a Reporting Company?

There are some nuances to the law on who is a beneficial owner of a reporting company, as it applies to more than just formal ownership.

“A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company or owns or controls at least 25 percent of the reporting company’s ownership interests,” says the Treasury Department.

Substantial control, according to the rule, is defined as “an individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control:

• The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function).
  
  
• The individual has the authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
  
  
• The individual is an important decision-maker for the reporting company.
  
  
• The individual has any other form of substantial control over the reporting company as explained further in FinCEN’s Small Entity Compliance Guide.
  
  

One of the indicators of substantial control is that the individual is an important decision-maker. What are important decisions?

According to the Treasury Department, any individual who directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding the reporting company’s:

• Business such as:
  • Nature, scope, and attributes of the business.
    
    
  • The selection or termination of business lines or ventures, or geographic focus.
    
    
  • The entry into or termination, or the fulfillment or non-fulfillment, of significant contracts.

• Finances, such as:
  • Sale, lease, mortgage, or other transfer of any principal assets.
    
    
  • Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget.
    
    
  • Compensation schemes and incentive programs for senior officers.

• Structure, such as:
  • Reorganization, dissolution, or merger.
    
    
  • Amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures.

The government also says that ownership interest is generally an arrangement that establishes ownership rights in the reporting company. Examples of ownership interests include shares of equity, stock, voting rights, or any other mechanism used to establish ownership.

The IACA says that exceptions to the beneficial owner definition include:

• Minor children (provided a parent or legal guardian is reported as a beneficial owner).
• Nominees.
• Employees (excluding senior officers).
• Future inheritors.
• Creditors

See the Treasury Department FAQs on BOI reporting for more details.

What Happens if I Don’t Report My BOI on Time?

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.

Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.

Providing false or fraudulent beneficial ownership information could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document.

Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.