In September 2022, FinCEN, a bureau of the U.S. Department of Treasury, announced its final rule requiring certain entities to report their beneficial ownership information. The BOI report is designed to provide transparency about who owns and benefits from an LLC or Corporation. It requests identifying information about the entity’s beneficial owners (the individuals who directly own or control a company).
The purpose of the reporting requirement is to make it more difficult for unscrupulous individuals to get away with illegal or improper gains through shell companies or other questionable ownership arrangements. It will provide the U.S. government with information that can potentially help it enhance national security and protect financial systems from criminals who traffic drugs, commit fraud, launder money, and engage in other illicit activities.
Who Must File a BOI Report?
A company must submit a BOI report if it meets the FinCEN’s beneficial owner reporting rule’s definition of a “reporting company” and does not qualify for an exemption.
How do you determine if your business qualifies as a reporting company? Reporting companies are classified as either domestic or foreign.
Who Must File a BOI Report?
- Domestic reporting company – A corporation, LLC, or any business entity created through filing a registration document with a secretary of state (or similar) office under the law of a state or Indian tribe.
- Foreign reporting company – A corporation, LLC, or other entity formed under the law of a foreign country that filed a document with a secretary of state or any similar office to register to do business in any U.S. state or tribal jurisdiction.
LLCs and C Corporations (including those with S Corporation status) fall under these definitions. Likewise, other entity types formed by filing registration documents with the state may be considered reporting companies — e.g., Limited Partnerships, Limited Liability Partnerships, Limited Liability Limited Partnerships, and business trusts.
FinCEN’s website provides a chart in its Small Entity Compliance Guide to help you assess if your company must report beneficial ownership information.
Who Is Exempt from BOI Reporting?
Sole Proprietorships and General Partnerships are not required to report business ownership information because they are not registered legal entities.
Also, FinCEN’s reporting rule has named 23 types of companies that may qualify for exemption from filing a BOI report. If an LLC or Corporation in one of the categories meets the exemption criteria for that category, it does not have to file a BOI report.
Entities that meet the criteria for any of the 23 exemption types are excused from the beneficial ownership reporting rule:
- Securities reporting issuer – An entity is exempt if it is either an issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 or it is an entity required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934.
- Governmental authority – For exemption, the entity must be established under the laws of the United States, an Indian tribe, a State, or a political subdivision of a State, or under an interstate compact between two or more States and it must exercise governmental authority on behalf of the United States or any such Indian tribe, State, or political subdivision.
- Bank – An entity is exempt if it is a “bank” as defined in section 3 of the Federal Deposit Insurance Act or section 2(a) or 202(a) of the Investment Company Act of 1940.
- Credit union – To be exempt, an entity must be a “Federal credit union” as defined in section 101 of the Federal Credit Union Act or a “State credit union,” as defined in section 101 of the Federal Credit Union Act.
- Depository institution holding company – An entity is exempt if it is a “bank holding company” as defined in section 2 of the Bank Holding Company Act of 1956 or it is a “savings and loan holding company” as defined in section 10(a) of the Homeowners’ Loan Act.
- Money services business – For exemption, an entity must be a money transmitting business or a money services business registered with FinCEN.
- Broker or dealer in securities – An entity is exempt if it is “broker” or “dealer,” as defined in section 3 of the Securities Exchange Act of 1934 and it is registered under section 15 of the Securities Exchange Act of 1934.
- Securities exchange or clearing agency – An entity is exempt if it is an “exchange” or “clearing agency,” as defined in section 3 of the Securities Exchange Act of 1934 and the entity is registered under sections 6 or 17A of the Securities Exchange Act of 1934.
- Other Exchange Act registered entity – To be exempt, an entity, it must be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and not be a securities reporting issuer (Exemption #1), broker or dealer in securities (Exemption #7), or securities exchange or clearing agency (Exemption #8).
- Investment company or investment adviser – An entity is exempt if it is an “investment company” (as defined in section 3 of the Investment Company Act of 1940) or “investment adviser” (as defined in section 202 of the Investment Advisers Act of 1940) and the entity is registered with the Securities and Exchange Commission under either the Investment Company Act of 1940 or the Investment Advisers Act of 1940.
- Venture capital fund adviser – The entity must be an investment adviser that is described in section 203(l) of the Investment Advisers Act of 1940 and have filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV with the Securities and Exchange Commission.
- Insurance company – The entity is exempt if it is an “insurance company” as defined in section 2 of the Investment Company Act of 1940.
- State-licensed insurance producer – For exemption, the entity must be an insurance producer authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State and it must have an operating presence at a physical office within the United States where it regularly conducts its business (must be a physical location that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity).
- Commodity Exchange Act registered entity – The entity is exempt if it is a “registered entity” as defined in section 1a of the Commodity Exchange Act or it is registered with the Commodity Futures Trading Commission under the Commodity Exchange Act as any of the following: futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, commodity trading advisor, retail foreign exchange dealer.
- Accounting firm – An entity that is a public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 is exempt from BOI reporting.
- Public utility – The entity is exempt if it is a regulated public utility and it provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.
- Financial market utility – For exemption, an entity must be a financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.
- Pooled investment vehicle – BOI reporting exemption is granted if an entity is an investment company, as defined in section 3(a) of the Investment Company Act of 1940 or a company that would be an investment company under that section but for the exclusion provided from that definition by paragraph (1) or (7) of section 3(c) of that Act and it is operated or advised by any of these types of exempt entities: bank, credit union, broker or dealer in securities, investment company or investment adviser, venture capital fund adviser.
19.Tax-exempt entity – The entity must meet any one of the following criteria to be exempt:
- It is an organization that is described in section 501(c) of the Internal Revenue Code of 1986 (determined without regard to section 508(a) and exempt from tax under section 501(a).
- It is an organization described in section 501(c) of the Code and was exempt from tax under section 501(a) but lost its tax-exempt status less than 180 days ago.
- It is a political organization, as defined in section 527(e)(1) of the Code, that is exempt from tax under section 527(a).
- It is a trust, as described in paragraph 1 or 2 of Internal Revenue Code section 4947.
20.Entity assisting a tax-exempt entity – The entity must meet all four of the following criteria:
- The entity operates exclusively to provide financial assistance to or hold governance rights over any tax-exempt entity described by Exemption #19.
- The entity is a United States person as defined in section 7701(a)(30) of the Internal Revenue Code of 1986.
- The entity is beneficially owned or controlled exclusively by one or more United States persons who are United States citizens or lawfully admitted for permanent residence. “Lawfully admitted for permanent residence” is defined in section 101(a) of the Immigration and Nationality Act.
- The entity derives at least a majority of its funding or revenue from one or more United States persons who are United States citizens or lawfully admitted for permanent residence.
21.Large operating company – An entity qualifies for exemption if all six of the following criteria are true:
- It employs more than 20 full-time employees. (Generally, “full-time employee” means an employee employed by the entity for an average of 30 or more hours of service per week.)
- More than 20 of the entity’s full-time employees are employed in the United States.
- The entity has an operating presence at a physical office within the United States.
- The entity filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.
- The company reported >$5,000,000 in gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated Form 1120, Form 1120-S, Form 1065, or other IRS form.
- The gross receipts or sales amount remains greater than $5,000,000 after excluding gross receipts or sales from sources outside the United States.
22. Subsidiary of certain exempt entities – An entity qualifies for exemption if the entity’s ownership interests are wholly owned or controlled (directly or indirectly) by any of the above exempt entities — with the exceptions of money services business (Exemption 6), pooled investment vehicle (Exemption 18), and entity assisting a tax-exempt entity (Exemption 20).
23. Inactive entity – An entity qualifies for exemption if all six of the following criteria apply:
- The entity was in existence on or before January 1, 2020.
- The entity is not engaged in active business.
- The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially.
- The entity has not experienced any change in ownership in the preceding twelve-month period.
- The entity has not sent or received any funds of more than $1,000 in the prior 12-month period.
- The entity does not otherwise hold any kind or type of assets, in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other entity.-
Why are those categories exempt? Typically, those companies are subject to other reporting requirements that provide the government with information sufficient for identifying the individuals who own or control them.
When Will FinCEN Accept BOI Reports?
FinCEN will begin accepting the reports on January 1, 2024. No early submissions are allowed.
BOI reporting due dates:
- Existing Companies – Reporting companies created or registered to do business before January 1, 2024, must file their initial BOI report by January 1, 2025.
- New Companies – Any reporting company created or registered on or after January 1, 2024, must file its initial BOI report within 90 days of its formation. The 90-day window begins either when the company receives notice from the state that its creation or registration is effective, or after a secretary of state (or similar office) provides public notice of the reporting company’s creation or registration, whichever is earlier.
Reporting companies must submit updated or corrected BOI reports as needed. There is no annual or other recurring reporting requirement. However, if information about a reporting company or its beneficial owners in a filed report has changed or is inaccurate, the business must submit an updated report within 90 calendar days after the date of the change or within 90 days after it became aware of the inaccuracy. No updated report is required if a company’s applicant information has changed.
BOI Reporting Requirements
The BOI report collects the following information about the reporting company and its beneficial owners and company applicants.
Reporting company information:
- Entity’s full legal name
- Any DBAs or trade names
- Principal U.S. business address
- Formation jurisdiction (state, tribal, or foreign)
- IRS taxpayer ID number (TIN, Social Security Number, EIN)
Beneficial owners and company applicants’ information:
- Full legal name
- Date of birth
- Complete residential street address (depending on the circumstances, company applicants should use the business address instead).
- Personal identification number and issuing jurisdiction from — and image of — a non-expired U.S. passport; state driver’s license; other ID document issued by a state, local government, or tribe; or a foreign passport if the individual doesn’t have any of the other forms of identification.
If a beneficial owner or company applicant has obtained a FinCEN identifier, the reporting company can include that FinCEN identifier in its report instead of the other information about the entity or individual. A FinCEN identifier is a unique ID number issued to an individual or reporting company upon request. Individuals may request one through an electronic application. A reporting company can request one by checking a box on its BOI report. No one is required to get a FinCEN identifier.
Who Is a Beneficial Owner of a Reporting Company?
Any individual who directly or indirectly exercises substantial control over the reporting company OR owns or controls at least 25% of its ownership interests is a beneficial owner. It’s possible a beneficial owner could have both substantial control and 25% or more ownership interests.
A reporting company can have multiple beneficial owners and must report all of them in its BOI report.
Note that FinCEN has some special reporting rules applicable to certain types of beneficial owners (e.g., minor children, individuals whose ownership interests in a reporting company are held through one or more entities considered exempt from the reporting company definition, and companies that meet the pooled investment vehicle exemption criteria).
What Does Substantial Control Mean?
Four general criteria determine if an individual has substantial control over a reporting company.
- The individual has a senior position of authority — e.g., President, Chief Financial Officer, Chief Executive Officer, Chief Operating Officer, General Counsel, or other title and similar responsibilities.
- The individual has the authority to appoint or remove any senior officer or a majority of the board of directors (or other governing body).
- The individual makes or influences important business and financial decisions by the reporting company.
- The individual has some other form of substantial control over the reporting company. (This is a catch-all criterion for any unique ways flexible company structures might allow individuals control over the business.)
Substantial control might be direct or indirect.
Examples of direct substantial control include:
- Serving on the reporting company’s board of directors
- Owning or controlling a majority of voting power or voting rights
- Having rights associated with financing or interest.
Examples of indirect substantial control include:
- Controlling any intermediary entities that exercise substantial control over a reporting company.
- Having financial or business relationships with other entities or individuals acting as nominees
What Is Considered Ownership Interest for BOI?
Any individual who owns or controls 25% or more of the ownership interests of a reporting company is a beneficial owner.
An ownership interest can be one or more of the following:
- Equity
- Stock
- Voting rights
- Capital or profit interest.
- Any instrument convertible into equity, stock, voting rights, or capital or profit interest.
- Options or other non-binding privileges to buy or sell any of the interests mentioned above.
- Any other instrument, contract, or mechanism to establish ownership.
Who Is Excluded from the Beneficial Ownership Rule?
If an individual considered a beneficial owner matches the description of one of FinCEN’s five exceptions, the reporting company does not have to include beneficial owner information about them in their BOI report.
The five exceptions to the definition of beneficial owner include:
- The individual is a minor child (provide information about the child’s parent or legal guardian instead).
- The individual acts on behalf of a beneficial owner as a nominee, intermediary, custodian, or agent.
- The individual is an employee whose control and economic benefits from the company are derived exclusively from their status as an employee and the person is not a senior officer of the reporting company.
- The individual’s only interest in the reporting company is a future interest through inheritance. (After the individual inherits their interest, they must be reported as a beneficial owner.)
- The individual is a creditor of the reporting company.
What Are Company Applicants and Do You Have to Report Them?
Company applicants fall into two categories:
- Direct filer – A direct filer is an individual who physically or electronically files a reporting company’s registration documents to create the business entity.
- Directs or controls the filing action – An individual primarily responsible for directing and controlling the entity formation filing, even though they did not personally file the document with the state.
Company applicants must be individuals, not companies or legal entities. All reporting companies required to provide company applicant information must identify a direct filer. The second category of company applicants only applies if more than one person was involved in filing the reporting company’s formation documents. A reporting company will report a maximum of two company applicants (i.e., one from Category 1 and one from Category 2).
Not all reporting companies must report their company applicant information:
- Required to Report Company Applicants – Domestic reporting companies created on or after January 1, 2024 and foreign reporting companies first registered to do business in the U.S. on or after January 1, 2024
- Not Required to Report Company Applicants – Domestic reporting companies created before January 1, 2024 and foreign reporting companies first registered to do business in the U.S. before January 1, 2024
FinCEN’s Use of BOI Report Data
FinCEN will keep all the information it collects in a secure database. The information will not be publicly available. Federal, state, local, tribal, and foreign government officials may request to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. If the reporting company consents, financial institutions may have access to beneficial ownership information under certain circumstances.
Penalties for Not Reporting by the Deadline
A company could face civil penalties of up to $500 per day for each day beyond the report due date if it fails to provide complete and accurate BOI information. The willful failure or attempt to provide false or fraudulent beneficial ownership information could even result in criminal penalties, including imprisonment for up to two years and/or a fine of up to $10,000.
How to File Your Report
BOI reports will be filed electronically through FinCEN’s secure filing system. That system will be available starting January 1, 2024, and instructions for completing the BOI report form will be available on FinCEN’s website.
