Frequently Asked Questions

Which companies must report beneficial ownership to FinCEN?

Companies required to report beneficial ownership information to FinCEN are known as reporting companies. Reporting companies fall into two main categories: domestic reporting companies and foreign reporting companies.

Domestic Reporting Companies

Domestic reporting companies include:

• Corporations: Traditional business structures where ownership is divided into shares of stock.
• Limited Liability Companies (LLCs): Flexible business entities that provide limited liability protection to their owners.
• Other Entities: Any other business entities created by the filing of a document with a secretary of state or any similar office in the United States. This can include limited partnerships, limited liability partnerships, business trusts, and other entities formed under state law.
  

Foreign Reporting Companies

Foreign reporting companies include:

• Foreign Entities: These are entities, including corporations and limited liability companies, formed under the laws of a foreign country.
• Registration to Do Business in the U.S.: These foreign entities must have registered to do business in the United States by filing a document with a secretary of state or any similar office. This ensures they have a recognized legal presence in the U.S. and are subject to U.S. regulations.
  

Exemptions

While many entities will be required to report, there are 23 specific types of entities that are exempt from these reporting requirements:

1. Securities Reporting Issuer: Issuers of securities registered under Section 12 of the Securities Exchange Act of 1934 or required to file supplementary and periodic information under Section 15(d) of the Act.
2. Governmental Authority: Entities established under the laws of the United States, a state, Indian tribe, or any political subdivision thereof, exercising governmental authority on behalf of such jurisdictions.
3. Bank: Entities defined as banks under Section 3 of the Federal Deposit Insurance Act, Section 2(a) of the Investment Company Act of 1940, or Section 202(a) of the Investment Advisers Act of 1940.
4. Credit Union: Entities defined as federal or state credit unions under Section 101 of the Federal Credit Union Act.
5. Depository Institution Holding Company: Entities defined as bank holding companies under the Bank Holding Company Act of 1956 or savings and loan holding companies under the Home Owners' Loan Act.
6. Money Services Business: Entities registered with FinCEN under 31 U.S.C. 5330 or 31 CFR 1022.380 as money transmitting businesses or money services businesses.
7. Broker or Dealer in Securities: Entities defined as brokers or dealers under Section 3 of the Securities Exchange Act of 1934 and registered under Section 15 of the Act.
8. Securities Exchange or Clearing Agency: Entities defined as exchanges or clearing agencies under Section 3 of the Securities Exchange Act of 1934 and registered under Sections 6 or 17A of the Act.
9. Other Exchange Act Registered Entity: Entities registered with the SEC under the Securities Exchange Act of 1934, not falling under exemptions for securities issuers, brokers, dealers, or clearing agencies.
10. Investment Company or Investment Adviser: Entities registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.
11. Venture Capital Fund Adviser: Investment advisers described in Section 203(l) of the Investment Advisers Act of 1940 and filing requisite forms with the SEC.
12. Insurance Company: Entities defined as insurance companies under Section 2 of the Investment Company Act of 1940.
13. State-Licensed Insurance Producer: Insurance producers authorized by a state and subject to state supervision with a physical office presence in the United States.
14. Commodity Exchange Act Registered Entity: Entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.
15. Accounting Firm: Public accounting firms registered in accordance with Section 102 of the Sarbanes-Oxley Act of 2002.
16. Public Utility: Regulated public utilities providing telecommunications, electrical power, natural gas, or water and sewer services within the United States.
17. Financial Market Utility: Entities designated as financial market utilities by the Financial Stability Oversight Council under Section 804 of the Payment Clearing and Settlement Supervision Act of 2010.
18. Pooled Investment Vehicle: Investment companies or similar entities operated or advised by exempt entities like banks or investment advisers.
19. Tax-Exempt Entity: Organizations described in Section 501(c) of the Internal Revenue Code and exempt from tax under Section 501(a), including political organizations and certain trusts.
20. Entity Assisting a Tax-Exempt Entity: Entities operating exclusively to provide financial assistance or governance to tax-exempt entities, primarily funded by U.S. persons.
21. Large Operating Company: Entities with more than 20 full-time employees in the U.S., operating from a physical office in the U.S., and with more than $5 million in gross receipts or sales.
22. Subsidiary of Certain Exempt Entities: Entities wholly owned by one or more exempt entities.
23. Inactive Entity: Entities existing before January 1, 2020, not engaged in active business, with no foreign ownership, and meeting additional specific criteria.
    

It is crucial to carefully review the qualifying criteria for exemptions before concluding that your company is exempt.

Is a trust considered a reporting company if it registers with a court of law for the purpose of establishing the court’s jurisdiction over any disputes involving the trust?

No, a trust is not considered a reporting company under the Beneficial Ownership Information (BOI) Reporting Requirements if it registers with a court of law solely to establish the court’s jurisdiction over any disputes involving the trust. According to the FinCEN guidelines, the act of registering a trust with a court for this specific purpose does not classify the trust as a reporting company.

For a trust to be deemed a reporting company, it must be engaged in activities that would qualify it as a corporation, limited liability company (LLC), or other similar entity created by the filing of a document with a Secretary of State or similar office under the law of a State or Indian Tribe. Simply put, the registration for jurisdictional purposes alone is insufficient to bring the trust under the reporting requirements aimed at corporate entities and LLCs. This distinction is crucial for trustees and beneficial owners to understand to ensure they accurately comply with BOI reporting obligations.

Is a Sole Proprietorship a Reporting Company?

A sole proprietorship is generally not considered a reporting company under the Beneficial Ownership Information (BOI) reporting requirements, unless it was created (or, if foreign, registered to do business) in the United States by filing a document with a secretary of state or similar office. Here’s an expanded explanation:

Creation and Registration Criteria

• A sole proprietorship must be created or registered by filing a document with a government office to be considered a reporting company.
• This includes entities formed or registered in any state, the District of Columbia, or U.S. territories and possessions.

Exceptions

• IRS Employer Identification Number (EIN): Filing for an EIN does not qualify a sole proprietorship as a reporting company.
• Fictitious Business Name: Registering a fictitious business name does not create a reporting company.
• Professional or Occupational License: Obtaining such licenses does not transform a sole proprietorship into a reporting company.

For an entity to be classified as a reporting company, it must meet specific criteria under the FinCEN rules:

• Domestic Reporting Company: An entity formed by filing a document with a state or tribal office.
• Foreign Reporting Company: An entity registered to do business in the U.S. by filing with a state or tribal office.

Examples

• Example 1: A sole proprietor who registers their business name with the local county but does not file any formation documents with the state is not a reporting company.
• Example 2: A sole proprietorship that files documents with a state office to form an LLC, which is then registered with the state, would be considered a reporting company.

Is a company registered in a U.S. territory a reporting company?

Yes. In addition to companies in the 50 states and the District of Columbia, a company that is created or registered to do business by the filing of a document with a U.S. territory’s secretary of state or similar office, and that does not qualify for any exemptions to the reporting requirements, is required to report beneficial ownership information to FinCEN. U.S. territories are the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, and the U.S. Virgin Islands.

Reporting Company Definition

The term "reporting company" includes not only companies formed within the 50 states and the District of Columbia but also those created or registered in U.S. territories. According to FinCEN regulations, if a company is established by filing necessary documents with the appropriate office in these jurisdictions, it is subject to the same reporting requirements as those based in the continental U.S. This means it must report beneficial ownership information unless it qualifies for specific exemptions.

U.S. Territories Included

The U.S. territories considered under this regulation include:

• The Commonwealth of Puerto Rico
• The Commonwealth of the Northern Mariana Islands
• American Samoa
• Guam
• The U.S. Virgin Islands

Exemptions

While many entities in these territories are considered reporting companies, some might be exempt. For example, specific types of entities, such as certain large operating companies, regulated entities like banks and credit unions, and inactive entities, may not need to report.

Beneficial Ownership Information

Beneficial ownership information includes data about individuals who exercise substantial control over the company or own or control at least 25% of the ownership interests. This information helps prevent illicit activities like money laundering and terrorism financing by providing transparency about who ultimately owns and controls businesses operating within U.S. jurisdiction.

Filing Requirements

The initial BOI report must include detailed information about the company and its beneficial owners. Companies formed or registered in U.S. territories must follow the same procedures and timelines for reporting as those in the 50 states and the District of Columbia.

Purpose of Reporting

The primary goal is to enhance transparency in corporate structures, ensuring that individuals who have significant control or ownership are identified. This aids in combating financial crimes by making it harder for illicit actors to hide behind anonymous entities.

Compliance Guidance

Companies must ensure they understand their obligations under these rules. Consulting resources like the FinCEN Small Entity Compliance Guide and the official FinCEN website can provide additional guidance and clarification.

Do the BOI reporting requirements apply to S-Corporations?

Yes. A corporation treated as a pass-through entity under Subchapter S of the Internal Revenue Code (an “S Corporation” or “S-Corp”) that qualifies as a reporting company—i.e., that is created or registered to do business by the filing of a document with a secretary of state or similar office, and does not qualify for any of the exemptions to the reporting requirements—must comply with the reporting requirements. The S-Corp’s pass-through structure for tax purposes does not affect its BOI reporting obligations. In particular, pass-through treatment under Subchapter S does not qualify an S-Corp as a “tax-exempt entity” under FinCEN BOI reporting regulations.

S-Corporation Defined

An S-Corporation, or S-Corp, is a special type of corporation created through an IRS tax election. It allows income, losses, deductions, and credits to pass through directly to shareholders, avoiding double taxation on the corporate income.

BOI Reporting Requirements

Beneficial Ownership Information (BOI) reporting requirements mandate that certain entities provide information about their beneficial owners to FinCEN. These requirements aim to enhance transparency and prevent illicit activities like money laundering and terrorism financing by ensuring authorities know who controls and profits from businesses operating in the U.S.

Application to S-Corporations

• Reporting Company Status: An S-Corp must comply with BOI reporting if it meets the definition of a reporting company. This means it must be a corporation created or registered to do business by filing a document with a secretary of state or similar office.
• Non-Exempt Status: The S-Corp must not qualify for any of the specific exemptions from reporting. Exemptions include certain regulated entities, large operating companies, inactive entities, and others as defined by FinCEN regulations.

Pass-Through Tax Treatment

• Irrelevance to BOI Reporting: The fact that an S-Corp is a pass-through entity for tax purposes does not impact its obligation to report beneficial ownership. Pass-through treatment means the corporation itself is not taxed, but rather, its income is taxed at the shareholder level. However, this tax status does not influence the corporation's requirements under BOI reporting rules.
• Not a Tax-Exempt Entity: S-Corps are not considered tax-exempt entities merely because they pass income through to shareholders. To be classified as tax-exempt under FinCEN BOI regulations, an entity must meet specific criteria unrelated to pass-through taxation. For example, charitable organizations under Section 501(c)(3) of the Internal Revenue Code are tax-exempt, but S-Corps do not fall into this category simply due to their tax structure.

Compliance Obligations

• Information to Report: An S-Corp that qualifies as a reporting company must submit information about its beneficial owners, including individuals with substantial control over the corporation or who own or control at least 25% of its ownership interests.
• Timeliness and Accuracy: S-Corps must ensure timely and accurate reporting of this information to avoid penalties. Initial reports and updates (e.g., changes in beneficial ownership) must be filed in accordance with FinCEN guidelines.

Purpose of Reporting

BOI reporting helps authorities track and prevent financial crimes by revealing the true owners and controllers of corporations, including S-Corps. This transparency is crucial for maintaining the integrity of the financial system and preventing misuse of corporate structures.

By understanding and adhering to these requirements, S-Corps can ensure they remain compliant with federal regulations and contribute to the broader goal of financial transparency and security. For more detailed guidance, S-Corps can refer to FinCEN resources and seek professional advice if needed.

If a domestic corporation or limited liability company is not created by the filing of a document with a secretary of state or similar office, is it a reporting company?

No. While FinCEN’s BOI reporting regulations define a domestic reporting company as including a corporation or limited liability company, the inclusion of those entities is based on an understanding that domestic corporations and LLCs are generally created by the filing of a document with a secretary of state or similar office. In an unusual circumstance where a domestic corporation or limited liability company is created, but not by the filing of a document with a secretary of state or similar office, such an entity is not a reporting company. 

Who is a beneficial owner of a reporting company?

A beneficial owner is an individual who either directly or indirectly:

1. Exercises substantial control over a reporting company, or
2. Owns or controls at least 25 percent of a reporting company’s ownership interests.

Understanding Substantial Control

Substantial control refers to significant influence or authority over a company's operations. This can include:

• Senior officers (e.g., president, CEO, CFO)
• Individuals with authority to appoint or remove senior officers or a majority of the board of directors
• Individuals who direct, determine, or influence major decisions (e.g., significant financial decisions, mergers)
• Any other individual with significant influence over the company

Examples of Substantial Control

• A CEO making strategic business decisions
• A board member with the power to influence the board's decisions
• A shareholder who can appoint the majority of the board members

Understanding Ownership Interests

Ownership interests can take various forms, including:

• Equity stock
• Voting rights
• Capital or profit interests
• Convertible instruments (e.g., stock options)
• Other mechanisms establishing ownership (e.g., partnership interests)

Examples of Ownership Interests

• An individual owning 30% of a company’s stock
• A partner in a partnership holding 25% profit interest
• A beneficiary of a trust owning 25% of the company through trust arrangements

Steps to identify Beneficial Owners

Step 1: Identify Individuals with Substantial Control

• Review the company’s structure and management roles.
• Identify senior officers and individuals with decision-making authority.
• Consider direct and indirect control (e.g., influence through intermediaries).

Step 2: Identify Types of Ownership Interests

• Determine the different classes of ownership (e.g., common stock, preferred stock).
• Identify all holders of these ownership interests.

Step 3: Calculate Ownership Percentages

• For stock, calculate the percentage of total outstanding shares each individual owns.
• For partnerships, calculate the percentage of capital or profit interest.
• Include indirect ownership through intermediaries (e.g., an individual owning shares through another entity).

Examples of Beneficial Owners

Example 1: Sole Proprietor 

• Individual A owns 100% of a small business and makes all major decisions.
• Beneficial Owner: Individual A (owns 100%, exercises substantial control).

Example 2: Multiple Shareholders

• Corporation with 3 shareholders: Individual A (50% shares), Individual B (30% shares), Individual C (20% shares).
• CEO is Individual D.
• Beneficial Owners: Individual A (50% ownership), Individual B (30% ownership), Individual D (substantial control as CEO).

Example 3: Complex Ownership via Trusts

• Trust owns 40% of the company. Trustee (Individual A) has the authority to manage trust assets.
• Beneficiaries B and C each have 20% interest in the trust.
• Beneficial Owners: Individual A (trustee, substantial control), Beneficiaries B and C (each indirectly own 20%).

Special Considerations

• Minors: Report the parent or legal guardian’s information instead of the minor’s.
• Foreign Pooled Investment Vehicles: Report one individual with substantial control if applicable.
• Exceptions: Certain individuals (e.g., nominees, creditors, employees without substantial control) may not need to be reported.

Compliance Steps 

Gather Information

• Full legal name
• Date of birth
• Residential address
• Identifying number from a government-issued document

Report to FinCEN

• File electronically via FinCEN’s secure system.
• Ensure accurate and up-to-date information.

Monitor and Update

• Report changes in beneficial ownership or inaccuracies promptly.

By following these steps and understanding the criteria, companies can accurately identify and report their beneficial owners, ensuring compliance with FinCEN’s requirements.