As the calendar turns to 2024, small businesses, private companies, and various entities find themselves grappling with the new reporting requirements for Beneficial Ownership Information (BOI) set forth by the Corporate Transparency Act (CTA). Enacted by Congress in 2021, the CTA mandates that reporting companies, both domestic and foreign, submit their BOI to the Treasury Department's Financial Crimes Enforcement Network (FinCEN) when filing incorporation paperwork with state secretaries or tribal authorities.
The scope is extensive, with FinCEN estimating that over 32 million reporting companies will be required to disclose their BOI in 2024. The purpose of this registry is to aid FinCEN and law enforcement in identifying the individuals who own or control corporations and shell companies, thus enhancing efforts to combat money laundering, terrorist financing, and other financial crimes.
Defining BOI, FinCEN states that it encompasses "identifying information about the individuals who directly or indirectly own or control a company." Beneficial owners, according to FinCEN, are individuals who either exercise substantial control over the reporting company or own or control at least 25 percent of its ownership interests.
New reporting companies formed on or after January 1, 2024, are given a 90-day window from the creation notice to submit their initial BOI report to FinCEN. Those in existence before this date have until January 1, 2025, to file their initial BOI report.
Certain entities are exempt from these requirements, including government entities and regulated entities already reporting their BOI to government bodies. FinCEN has outlined 23 exempted entities, such as public companies, banks, credit unions, broker-dealers, and more. Large operating companies, as defined by FinCEN, are exempt if they have 20 or more full-time U.S.-based employees, physical operations in the United States, and have generated over $5 million in gross receipts or sales on their most recent federal income tax return.
A reporting company is required to submit information about itself, including its legal name, trade names, principal business address, jurisdiction of formation or registration, and taxpayer identification number. Additionally, details about beneficial owners must be provided, such as name, date of birth, residential address, and an identifying number from an acceptable identification document.
Access to FinCEN's BOI registry is restricted to entities outlined in FinCEN's finalized BOI registry access rule. This includes federal law enforcement agencies, federal agencies fulfilling requests from certain foreign entities, the U.S. Treasury and its agents, state, local, and tribal law enforcement agencies with a court order, and financial institutions complying with FinCEN's 2016 customer due diligence rule.
Penalties for non-compliance with BOI reporting to FinCEN are severe. Civil penalties of up to $500 per day for each continuing violation and criminal penalties of up to two years imprisonment and a fine of up to $10,000 are outlined in the CTA. FinCEN specifies potential violations as "willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information." Businesses are strongly urged to familiarize themselves with the requirements and ensure timely and accurate filing to avoid these penalties.
By fLEXI tEAM