Beneficial Ownership Reporting Requirements under the Corporate Transparency Act: What You Need to Know

Note: As of March 1, 2024, a federal district court ruling has declared the Corporate Transparency Act (CTA) unconstitutional, and the Financial Crimes Enforcement Network (FinCEN) has stated that it is not currently enforcing the CTA against the plaintiffs in that action. On March 11, 2024, FinCEN filed a notice that it will be appealing the decision.  Pending the outcome of the appeal, the implications of the case with respect to parties other than the plaintiffs in that action remain uncertain, but at this point there remains no indication that FinCEN will not be enforcing the CTA against others. The below post was written prior to the court’s decision and assumes that the CTA is enforceable in accordance with its terms.

As a result of changes in US law, most newly formed companies, as well as many existing companies, will need to comply with the beneficial ownership information (BOI) reporting rule under the Corporate Transparency Act (CTA). The BOI rule requires covered companies — referred to as “reporting companies” – to submit reports of the company’s “beneficial owners” and related company information to the Financial Crimes Enforcement Network (FinCEN), part of the US Department of the Treasury.

This article describes the BOI rule reporting requirements, and what companies need to do to comply with them.

Does my company need to report?

Under the BOI rule, a “reporting company” is any company formed in the US, or any non-US company that registers to do business in the US, by filing a document with a secretary of state or similar office, unless it comes within the scope of an exemption.

What are the exemptions?

There are 23 categories of exemptions from reporting company requirements. Below is a summary of exemptions that are likely to apply to a significant number of companies.

• Large operating companies, which includes any company that employs more than 20 full-time employees in the US, has more than $5,000,000 in gross receipts or sales in the US, and has an operating presence at a physical office within the US.
• Public companies.
• Tax exempt companies that fall under one of four specified categories, including organizations described in section 501(c) of the Internal Revenue Code of 1986 and that are exempt from tax under section 501(a) of the Code.
• Certain types of regulated entities, such as insurance companies, banks and credit unions, brokers or dealers in securities, and registered money services businesses (MSBs).
• Entities involved in private equity and venture capital, specifically, investment companies, investment advisers, pooled investment vehicles and venture capital fund advisers.
• Subsidiaries of certain exempt entities, including large operating companies, public companies, regulated entities such as banks (but not MSBs), and investment companies, investment advisers, and venture capital fund advisers – provided in each case that the subsidiary’s ownership interests are controlled, or wholly owned, directly or indirectly, by the exempt entity.

Note: Many early-stage and newly formed companies are unlikely to meet any of these exemptions and are likely to be reporting companies.

A company that believes it meets an exemption should confirm that specific required criteria are met. Additional detail on each exemption, including specific required criteria, is provided by FinCEN in Section 1.2 of its Small Entity Compliance Guide.

What do I need to do if my company is exempt?

If a company meets an exemption, it is not a reporting company and is not required to file anything with FinCEN pursuant to the BOI rule. However, the company should document its determination that it is exempt. Companies should also ensure that each entity within its corporate structure is also exempt (e.g., pursuant to the subsidiary exemptions) and that any newly formed entities also meet exemptions. If an exempt company subsequently no longer qualifies for an exemption, it must file a BOI report consistent with the timing requirements summarized below.

What do I need to do if my company is a reporting company?

A reporting company must file a BOI report with FinCEN that includes specific information about the company and certain individuals associated with the company. More information for reporting companies is provided below.

What information do I need to report to FinCEN?

Each reporting company must submit its own BOI Report. Reporting companies are required to submit BOI Reports through FinCEN’s BOI e-filing platform. More information for reporting companies is provided below.

Start by identifying and collecting the required reporting information.

Each BOI report includes two or three types of information, depending on when the company was created.

1. Company information: Full entity legal name (and any trade names), current address (which must be a US street address, not a PO box), jurisdiction of formation, and taxpayer identification number (or equivalent issued by a non-US jurisdiction).
2. Beneficial owner information: For each individual identified as a beneficial owner, the required information is their full legal name, date of birth, residential address, and the unique identifying number and image of a US passport, state driver’s license, or other eligible identification document.
3. Company applicant information: This requirement applies only for reporting companies created or registered on or after January 1, 2024, and the information required to be submitted about company applicants is the same as the required information for beneficial owners.

We explain below how to identify individuals who are beneficial owners or company applicants. The reporting company must compile all of the required information into its BOI report, then timely submit the report.

As an alternative to collecting and submitting sensitive information about the individuals required to be included in the company’s BOI report, those individuals can obtain a “FinCEN identifier” directly from FinCEN. The reporting company can include the FinCEN identifier in its BOI report instead of the individual’s personal information. Additional information on the FinCEN identifier and how to obtain one is provided later in this article.

Ensure that BOI reports are submitted on time.

The reporting deadline depends on when the company is created:

• Reporting companies created in 2024 must submit BOI reports within 90 days of receiving notice of the company’s creation or registration.
• Reporting companies created on or before December 31, 2023, must submit a BOI report on or before January 1, 2025.
• Reporting companies created on or after January 1, 2025, must submit a BOI report within 30 days after receiving notice of the company’s creation or registration.

Ensure that BOI reports are updated or corrected on time.

Reporting companies must ensure that the information in the BOI report is kept current. The company must report changes to reported company information (e.g., the addition of a trade name or a change of the main address) as well as information about new beneficial owners and changes to existing beneficial ownership information or documentation (e.g., a change of a beneficial owner’s residential address).

A reporting company must file an updated BOI report to communicate changes to company or beneficial owner information no later than 30 days after the date of the change. A reporting company also must file a corrected BOI report within 30 days after the date the company becomes aware of an inaccuracy in a previously filed BOI report or had reason to know of such inaccuracy. There is a safe harbor from penalties for filing incorrect or inaccurate BOI reports, provided that the report is corrected within 90 days of when it was filed.

Companies do not need to report changes to company applicant information, but they do need to file an updated BOI report if there are inaccuracies in previously reported company applicant information.

Companies are not otherwise required to submit BOI reports on an annual or other periodic basis as a matter of course.

Who are my company’s beneficial owners?

For purposes of the BOI rule, a “beneficial owner” is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. Note that even though the rule refers to these individuals as beneficial owners, many individuals who are considered beneficial owners under the BOI rule are likely to have no material ownership interest at all, but they will need to be identified as beneficial owners by virtue of exercising substantial control.

What is ‘substantial control’ under the BOI rule?

• The BOI rule describes four categories of “substantial control”:
• The individual is a senior officer – for example, chief executive officer, president, chief financial officer, chief operating officer or general counsel.
• The individual has authority to unilaterally appoint or remove any such senior officer or a majority of the board of directors of the reporting company.
• The individual directs, determines or has substantial influence over important decisions made by the reporting company.
• The individual has any other form of substantial control over the reporting company.

Identifying individuals in the first two categories should be a relatively straightforward exercise for most companies. Senior officers such as the CEO, CFO, etc. will be beneficial owners required to be included in the company’s BOI report. Next, the company should confirm whether any individual has the unilateral hiring and firing authority described above.

The third category may require a case-by-case analysis to identify individuals associated with the company who are important decision-makers (i.e., people who direct, determine or have substantial influence over important decisions of the reporting company). FinCEN has indicated that merely being a member of a reporting company’s board of directors does not make a person a beneficial owner. However, if an individual board member has substantial influence over important decisions, such as whether to dissolve the organization or enter into a merger or acquisition agreement, or incur any significant debt, the individual may be considered a beneficial owner.

The final category is intended as a catchall to ensure that individuals exercising control in new and novel ways are identified by reporting companies.

How do I identify beneficial owners based on ownership interests?

While many privately held reporting companies may have investors that hold an interest in the company in excess of 25%, the BOI rule only requires a reporting company to identify individuals whose ownership interests exceed the threshold. Furthermore, even if an individual owns or controls more than 25% of the ownership interests of a reporting company through an entity or entities, the reporting company is only required to report the names of the entities provided that the individual only holds the ownership interests through entities that are exempt from the BOI rule (i.e., are not themselves reporting companies).

To determine whether an individual owns or controls, directly or indirectly, at least 25% of the ownership interests of the company, a reporting company may need to first identify the types of ownership interests, then calculate whether any single individual’s interests exceed 25%. Ownership interests for purposes of the BOI rule can include equity, stock or voting rights; a capital or profit interest; convertible instruments; options or other nonbinding privileges to buy or sell any of the aforementioned types of interests; or any other instrument, contract or other mechanism used to establish ownership.

FinCEN’s Small Entity Compliance Guide provides additional information, including checklists, for identifying individuals who are beneficial owners based on the substantial control and ownership interests prongs, but companies with more complex ownership and/or governance structures may need to conduct a more detailed and nuanced analysis to identify beneficial owners.

Who are my company’s ‘company applicants’?

Reporting companies created after January 1, 2024, are required to identify and report company applicants. Each such reporting company will have at least one and a maximum of two company applicants. Under the BOI rule, a “company applicant” is defined as (1) the individual who directly files the document that creates a domestic reporting company or first registers a non-US reporting company to do business in the US, and, if applicable, (2) the individual primarily responsible for directing or controlling the filing of the creation or registration document.

If a new company uses a corporate formation services firm to create the entity, the first company applicant should be the individual employed by the service provider that actually files the documents. The company will need to ensure that it obtains the required information to include this individual on its BOI report.

If a new company directly engages the corporate services firm to handle the filing, the second company applicant likely would be the individual associated with the company that requests and directs the filing. If the company engages a law firm that assists with the company’s creation by coordinating the filing with the corporate formation services firm, the company applicant may include an individual associated with the law firm. Identifying the second company applicant will need to be addressed on a case-by-case basis.

Reporting companies created or registered on or before December 31, 2023, do not have to report company applicants when they start reporting by January 1, 2025.

Note: Individuals or third-party service providers that assist a company with filing the BOI report itself (or actually file the report) are not company applicants (unless they otherwise meet the definition) and do not need to be included in the BOI report.

How do I submit a BOI report?

Instructions and links to submit BOI reports can be found on FinCEN’s BOI e-filing website and filing resources page. Generally, reporting companies may either (i) prepare and submit their BOI report directly through an online fillable form on FinCEN’s BOI platform or (ii) can download a fillable PDF BOI reporting form and then upload and submit the form through the FinCEN portal. Reporting companies may use a third-party service provider to submit initial BOI reports and updates on their behalf. FinCEN does not charge a fee for submitting BOI reports.

What’s a ‘FinCEN identifier’ and how does it work?

A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual upon request. An individual may directly apply for a FinCEN identifier by providing the same information that a reporting company would submit on behalf of the individual as a company applicant or beneficial owner. (In certain instances, a reporting company may wish to obtain a FinCEN identifier and can request the issuance of one when filing its BOI report.)

A reporting company may report an individual’s FinCEN identifier in place of the required four pieces of information about the individual in its BOI report. An individual who is either a beneficial owner or a company applicant of a reporting company would therefore not need to provide personal information directly to the reporting company if the individual has obtained a FinCEN identifier and provides the identifier to the reporting company instead. FinCEN identifiers may be particularly convenient for individuals who will be company applicants or beneficial owners for multiple companies. An individual generally must keep the information provided to FinCEN to obtain a FinCEN identifier (e.g., address information) updated.

Individuals may create an account and apply for a FinCEN identifier through the FinCEN ID application platform. FinCEN identifiers are automatically generated upon submission of a complete application. Reporting companies should consider encouraging beneficial owners to obtain FinCEN identifiers to minimize the amount of sensitive personal information they will need to collect and directly submit to FinCEN with their BOI reports.

Other things to consider

What are the penalties for noncompliance?

The BOI rule does not provide for penalties for negligent or accidental violations of the law. However, any person who willfully provides, or attempts to provide, false or fraudulent BOI data to FinCEN – or willfully fails to report, or to report complete or updated BOI data to FinCEN – may be subject to civil or criminal penalties of up to $10,000 and up to two years in prison. A person fails to report complete or updated BOI data to FinCEN if, with respect to a reporting company, the person “causes the failure,” which could include an individual’s refusal to provide or submit required information for a reporting company’s BOI report.

Who has access to BOI reports?

On December 22, 2023, FinCEN published a final rule governing access to and protection of beneficial ownership information. According to FinCEN, beneficial ownership information reported to FinCEN will be stored in a “secure, non-public database using rigorous information security methods and controls typically used in the federal government to protect non-classified yet sensitive information systems at the highest security level.” FinCEN has also announced that it plans to collaborate with authorized entities to ensure their systems are equally as secure and that they understand their roles and responsibilities in using the reported information for authorized purposes only.

The final rule states that 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. Additionally, financial institutions that are subject to requirements relating to collecting and verifying beneficial ownership information in connection with customer due diligence requirements will have access to beneficial ownership information in certain circumstances, in each instance 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.

How can I ensure my company stays in compliance going forward?

Covered companies may wish to consider developing policies and procedures, with appropriate documentation, to address compliance with the BOI rule and its reporting requirements. Considerations may include a determination that the BOI rule applies to the company, its process for identifying beneficial owners, allocation of responsibility to complete and submit BOI reports to FinCEN, and the identification of processes for ensuring that information is accurate and kept up to date, including in response to organizational changes such as senior officer resignations or appointments and new investors. Such policies and procedures also should address confirming that the company remains a reporting company (e.g., it is not subsequently within the scope of an exemption).

Are other resources and guidance available?

FinCEN is continuing to create regulations and provide updated information with respect to implementing the CTA. As noted above, BOI reports can be electronically filed through the FinCEN e-filing system. The agency has also published (and is continuously updating) a collection of information regarding BOI reporting for companies seeking a better understanding of their obligations under the rules and regulations issued to date, including the guidance referenced below. As noted above, FinCEN has issued a Small Entity Compliance Guide, which is its most comprehensive guidance to date on compliance obligations under the BOI reporting rule. Additionally, FinCEN has published and regularly updates a Frequently Asked Questions page relating to the BOI rule, and it has provided a general overview through the Beneficial Ownership Information Reporting Rule Fact Sheet.