Disclosure of Information Regarding Beneficial Owners to FinCEN

January 31, 2024 elitestage No Comment

The new year brings the most expansive disclosure requirements for U.S. business entities since the Depression.

Starting January 1, 2024, U.S. companies and foreign companies operating in the United States will be required to report their beneficial owners and principal officers to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) pursuant to the Corporate Transparency Act (CTA) adopted as part of the 2021 National Defense Authorization Act, unless subject to specific exemptions.

Who Is Required to Report?

The CTA’s filing requirements (31 CFR 1010.380(c)(1)) apply to both domestic reporting companies and foreign reporting companies.Domestic reporting companies are corporations, limited liability companies and any other entity registered to do business in any state or tribal jurisdiction by the filing of a document with the secretary of state or similar official.Foreign reporting companies are business entities formed under the law of a foreign country that are registered to do business in any state or tribal jurisdiction by the filing of a document with the secretary of state or similar official

The CTA provides 23 categories of exemption. The following types of entities are not required to file reports with FinCEN:

It is worth noting that the definition of reporting companies is not limited to corporations and limited liability companies. Limited partnerships, professional service entities and other entities may qualify as reporting companies and, if so, are required to comply with the CTA’s reporting requirements.

How Does a Company Comply?

FinCEN requires affected companies to file beneficial ownership information reports (BOI Reports) using an electronic filing system. See the BOI E-Filing System.

What Information Should Be Reported?

Reporting companies must identify beneficial owners in their BOI Reports.Beneficial owners are defined as individuals who directly or indirectly(1) exercise substantial control over a reporting company(2) own or control at least 25 percent of ownership interests of a reporting company.Ownership interests covered by the CTA may include profits interests, convertible instruments, options and contractual arrangements as well as equity securities. In addition, owners who hold their ownership interests jointly or through a trust, agent or other intermediary are also required to be identified – although minors are generally exempted from reporting obligations.

Senior officers (typically, the president, CEO, CFO, COO and officers who perform similar functions); individuals with the ability to appoint senior officers or a majority of the board of directors or a similar body; and anyone else who directs, determines or has substantial input to other important decisions of a reporting company also need to be identified in BOI Reports as individuals exercising substantial control over reporting companies.Reporting companies created on or after January 1, 2024, also must identify “company applicants” in their BOI Reports. Company applicants are the individuals who filed the documents creating the reporting company and individuals primarily responsible for directing or controlling the filing of documents creating a reporting company.BOI Reports must contain the following information regarding the reporting company:

Legal name

Any trade name or d/b/a name

Address of the company’s principal place of business in the United States

Jurisdiction of formation

Taxpayer Identification Number.

BOI Reports must contain the following information regarding each beneficial owner and company applicant:

Full legal name

Date of birth

Current address

Copy of a passport, driver’s license or other identification document.

Every person who files a BOI Report must certify the information contained is true, correct and complete.

Information contained in BOI Reports will not be available to the public. However, FinCEN is authorized to disclose such information to:U.S. federal agencies engaged in national security, intelligence or law enforcement activityWith court approval, to certain other state or local law enforcement agenciesNon-U.S. law enforcement agencies at the request of a U.S. federal law enforcement agency, prosecutor or judgeWith the consent of the reporting company, financial institutions and their regulatorsFederal regulators in assessing financial institutions compliance with customer due diligence requirementsThe U.S. Department of the Treasury for purposes including tax administration.

Is There a Fee?

No fee is required in connection with filing of BOI Reports.

When Do Companies Need to File?

U.S. and foreign reporting companies that were formed or registered to do business in the United States prior to January 1, 2024, must file their initial BOI Reports no later than January 1, 2025. U.S. and foreign reporting companies formed on or after January 1, 2024, must file their initial BOI Reports within 90 days of receipt of notice of formation.Reporting companies are required to file updated reports with FinCEN within 30 days of occurrence of a change in any of the information contained in their BOI Reports.

What If There Are Changes or Inaccuracies in the Reported Information?

Inaccuracies in BOI Reports must be corrected within 30 days of the date a reporting company becomes aware of or had reason to know of such inaccuracy. FinCEN has indicated that there will be no penalties for filing inaccurate BOI Reports if such reports are corrected within 90 days of their filing.

What If a Company Fails to File?

The willful failure to report the information required by the CTA or filing fraudulent information under the CTA may result in civil or criminal penalties, including penalties of up to $500 per day as long as a violation continues, imprisonment for up to two years and a fine of up to $10,000. Senior officers of an entity that fails to file a required report may be held accountable for such failure.

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