On January 1, 2024, a new federal reporting requirement went into effect called the Corporate Transparency Act (CTA) that requires an estimated 33 million small businesses to file a Beneficial Ownership Information Report (BOI) with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Non-compliance can result in severe penalties, including fines of up to $10,000 and even jail time.

Existing reporting companies created or registered to do business in the United States before January 1, 2024, must file a BOI by January 1, 2025. New reporting companies created or registered to do business in the United States on or after January 1, 2024, and before January 1, 2025, have 90 calendar days after receiving actual or public notice that their company’s creation or registration is effective to file their initial BOI reports. Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from receipt of actual or public notice that their creation or registration is effective to file their initial BOI reports.

Updated BOI reports are required when there is a change to previously reported information about the reporting company itself or its beneficial owners.

The BOI reports under the CTA are part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.

Companies required to report are called reporting companies. There are two types of reporting companies:

1. Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
2. Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

There are 23 types of entities that are exempt from the reporting requirements. These entities include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies. The 23 types of entities exempt from filing BOI reports are:

1. Securities reporting issuer
2. Governmental authority
3. Bank
4. Credit union
5. Depository institution holding company
6. Money services business
7. Broker or dealer in securities
8. Securities exchange or clearing agency
9. Other Exchange Act registered entity
10. Investment company or investment adviser
11. Venture capital fund adviser
12. Insurance company
13. State-licensed insurance producer
14. Commodity Exchange Act registered entity
15. Accounting firm
16. Public utility
17. Financial market utility
18. Pooled investment vehicle
19. Tax-exempt entity
20. Entity assisting a tax-exempt entity
21. 21. Large operating company
22. Subsidiary of certain exempt entities
23. Inactive entity

Beneficial Owners that must be disclosed on the BOI reports are individuals who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests. “Substantial control” means:

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

An important decision-maker under 3 above, is an individual who makes important decisions such as decisions about a reporting company’s business, finances, and structure. An individual that directs, determines, or has substantial influence over these important decisions exercises substantial control over a reporting company.

If a beneficial owner owns or controls their ownership interests in a reporting company exclusively through multiple exempt entities, then the names of all of those exempt entities may be reported to FinCEN instead of the individual beneficial owner’s information. However, when an individual owns or controls ownership interests in a reporting company through both exempt and non-exempt entities, the reporting company must report the individual as a beneficial owner (if no exception applies), but the exempt companies do not need to be listed.

Should you be uncertain whether your company must file a BOI report, or you need assistance in completing and filing the BOI report, contact your business attorney for guidance.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.