What is beneficial ownership information?
Beneficial Ownership Information (BOI) refers to details about individuals who own or control at least 25% of a company or have significant influence over it. These details are required to be reported under the Corporate Transparency Act to increase transparency and combat illicit activities.
Key Points
- Substantial Control: Includes senior officers or individuals making major company decisions.
- Ownership Interest: Individuals owning 25% or more of the company’s equity, stock, or voting rights.
The BOI must be reported to FinCEN electronically and will be stored in a secure database. This reporting includes full legal names, addresses, dates of birth, and unique identifying numbers from official documents.
The aim is to ensure transparency about who truly owns and controls companies, helping to prevent illegal activities.
Why do companies have to report beneficial ownership information to FinCEN (a bureau of the U.S. Department of the Treasury?
Companies are required to report beneficial ownership information (BOI) to the U.S. Department of the Treasury primarily for the following reasons:
- Combating Financial Crimes: The primary objective is to combat various financial crimes, such as money laundering, terrorist financing, tax evasion, and other illicit activities. By requiring companies to disclose their beneficial owners, the Financial Crimes Enforcement Network (FinCEN) aims to increase transparency and make it more difficult for criminals to hide their identities and activities behind anonymous corporate structures
- Enhancing Transparency: The Corporate Transparency Act (CTA) mandates this reporting to increase transparency in the corporate sector. This ensures that the true owners of entities are known, which helps prevent the misuse of corporations for illegal purposes.
- Regulatory Compliance: The BOI reporting rule, implemented under the CTA, ensures that entities comply with regulatory standards designed to maintain the integrity of the financial system. This helps law enforcement and regulatory bodies track and mitigate illegal activities effectively.
- Data Centralization: The reported BOI is stored in a centralized database maintained by FinCEN, which can be accessed by authorized users, including law enforcement agencies, regulators, and financial institutions conducting due diligence. This centralization aids in efficient and effective information sharing.
- Legal and Economic Integrity: Reporting beneficial ownership information promotes legal and economic integrity by ensuring that companies operate transparently and within the law. This can boost investor confidence and foster a fair business environment.
Who can access beneficial ownership information?
Under the Corporate Transparency Act (CTA), beneficial ownership information (BOI) reported to FinCEN will be stored in a secure, non-public database. Access to this information will be limited to authorized users for specific purposes. Those who can access BOI include:
- Federal, State, Local, and Tribal Officials: These officials can obtain BOI for authorized activities related to national security, intelligence, and law enforcement.
- Certain Foreign Officials: Foreign officials may access BOI through a request submitted via a U.S. Federal government agency.
- Financial Institutions: Financial institutions may access BOI in certain circumstances, but only with the consent of the reporting company.
- Regulators of Financial Institutions: These regulators will have access to BOI when supervising financial institutions.
FinCEN is developing the rules to ensure that those authorized to access BOI understand their roles and responsibilities, ensuring that the information is used only for authorized purposes and handled securely and confidentially.
What information will a reporting company have to report about itself?
A reporting company will have to report information about itself, its beneficial owners, and, in some cases, its company applicants.
A reporting company will need to provide the following information about itself:
- Its legal name;
- Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
- The current street address of its principal place of business if that address is in the United States (for example, a U.S. reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address of the primary location where the company conducts business in the United States or receives important correspondence. If the reporting company has no principal place of business in the United States and does not conduct business at any location in the United States, then use the address in the United States designated for service of legal process, i.e., the registered agent or registered office address;
- Its jurisdiction of formation or registration; and
- Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).
A reporting company will need to provide the following information about its beneficial owners:
- The individual’s name;
- Date of birth;
- Residential address; and
- An identifying number from an acceptable identification document such as a non-expired passport or U.S. driver’s license, the name of the issuing state or jurisdiction of identification document, and an image of the identification document.
A reporting company created or registered on or after January 1, 2024, will need to provide the following information about its company applicants:
- The individual’s name;
- Date of birth;
- Address; and
- An identifying number from an acceptable identification document such as a non-expired passport or U.S. driver’s license, the name of the issuing state or jurisdiction of identification document, and an image of the identification document.
If the company applicant works in corporate formation—for example, as an attorney or corporate formation agent—then the reporting company must report the company applicant’s business address. Otherwise, the reporting company must report the company applicant’s residential address.
What penalties do individuals face for violating BOI reporting requirements?
As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $591 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation. (As of the time of publication of this FAQ, this amount is $591.)
A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include 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.
When does a reporting company need to report their beneficial ownership information to FinCEN?
Reporting Companies Created or Registered Before January 1, 2024
- Deadline: January 1, 2025
- These companies must file their initial beneficial ownership information (BOI) report with FinCEN by January 1, 2025. This extended deadline allows existing companies ample time to gather the necessary information and ensure compliance with the new regulations.
Reporting Companies Created or Registered On or After January 1, 2024, and Before January 1, 2025
- Deadline: 90 calendar days after receiving notice of the company’s creation or registration
- Companies falling into this category must file their initial BOI report within 90 calendar days from the earlier of either receiving actual notice that the company’s creation or registration is effective or the first public notice of its creation or registration. This 90-day window provides a reasonable period for new companies to comply without immediate pressure.
Reporting Companies Created or Registered On or After January 1, 2025
- Deadline: 30 calendar days from actual or public notice of creation or registration
- Companies formed or registered from January 1, 2025, onwards must file their initial BOI report within 30 calendar days from the earlier of receiving actual notice or the first public notice of the company’s creation or registration. This shorter timeframe emphasizes the importance of timely compliance for newly formed entities under the ongoing requirements.
Changes in Reported Information
- Deadline: Within 30 calendar days of the change
- If there are changes to any previously reported beneficial ownership information (such as changes in ownership, control, addresses, or other significant details), the company must file an updated report with FinCEN within 30 calendar days of the change to maintain accurate records.
Correcting Inaccurate Information
- Deadline: Within 30 calendar days of becoming aware of the inaccuracy
- If a company discovers that any information previously reported was inaccurate, it must file a corrected report within 30 calendar days of discovering the inaccuracy. This ensures that the data held by FinCEN remains reliable and up-to-date.
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:
- 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.
- 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.
- 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.
- Credit Union: Entities defined as federal or state credit unions under Section 101 of the Federal Credit Union Act.
- 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.
- 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.
- 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.
- 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.
- 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.
- Investment Company or Investment Adviser: Entities registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.
- 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.
- Insurance Company: Entities defined as insurance companies under Section 2 of the Investment Company Act of 1940.
- State-Licensed Insurance Producer: Insurance producers authorized by a state and subject to state supervision with a physical office presence in the United States.
- Commodity Exchange Act Registered Entity: Entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.
- Accounting Firm: Public accounting firms registered in accordance with Section 102 of the Sarbanes-Oxley Act of 2002.
- Public Utility: Regulated public utilities providing telecommunications, electrical power, natural gas, or water and sewer services within the United States.
- 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.
- Pooled Investment Vehicle: Investment companies or similar entities operated or advised by exempt entities like banks or investment advisers.
- 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.
- 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.
- 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.
- Subsidiary of Certain Exempt Entities: Entities wholly owned by one or more exempt entities.
- 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:
- Exercises substantial control over a reporting company, or
- 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.
