What you need to know about the Beneficial Ownership Information reporting requirements under the Corporate Transparency Act

On Jan. 1, 2024, the Corporate Transparency Act (the “CTA”) went into effect, requiring many companies operating in the U.S. to report information about the individuals who own or control each reporting company to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The goal of CTA is to increase visibility into business entity ownership in order to prevent bad actors, such as terrorists, money launderers, and criminals, from concealing assets through anonymous shell companies and other illegal acts.  FinCEN estimates that tens of millions of businesses, their owners and investors will be impacted.

Given the extremely wide scope of the CTA, your company and you specifically as an individual may be subject to the reporting requirements, so it’s important to understand whether you or your company are required to report information and what information will need to be disclosed to FinCEN. In this post, we’ll provide an overview of the report, what information goes into it, and who needs to be included as a beneficial owner or company applicant. Please note that this post does not represent legal advice and we recommend consulting with legal counsel before filing the report to FinCEN.

What does the BOI report consist of, and what information is needed?

The Beneficial Ownership Information (“BOI”) report requires disclosure of information regarding the reporting company, beneficial owners, and company applicants. This report will be filed through a secure filing system at the FinCEN website.

Reporting companies will need to submit their full legal name, DBA (if applicable), business address, jurisdiction of formation or registration, and EIN or other unique tax ID number. Beneficial owners and company applicants will need to submit their full names, DOB, residential address, and image of government-issued ID with ID number and photograph shown.

Which companies are required to file BOI reports?

Any entity that is a corporation, a limited liability company, or otherwise created by the filing of a document with a secretary of state or similar office must file a BOI report. However, entities with a physical address in the U.S., 21 full-time employees in the U.S., and at least $5 million in gross revenue per latest tax filing are exempt. Other exempt entities include regulated business entities, such as publicly traded companies, insurance businesses, banking businesses, 501(c) registered non-profit entities, and quasi-governmental organizations.

Who is a “beneficial owner” under the CTA?

FinCEN defines a beneficial owner as an individual who:

  • exercises substantial control over a reporting company; or
  • owns or controls at least 25% or more of the ownership interest in a reporting company, or 
  • exercises substantial control over a reporting company if the individual meets any of four general criteria: 
  1. the individual is a senior officer; 
  2. the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;
  3. the individual is an important decision-maker; or 
  4. the individual has any other form of substantial control over the reporting company. 

To determine whether an individual owns or controls at least 25% of the ownership interest of the company, ownership interest can come in the form of equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership.

A reporting company can have multiple beneficial owners, and there is no maximum on the number of beneficial owners that can be reported for one company.

Who is exempt from the “beneficial owner” definition under the CTA? 

An individual is exempt if any of the following apply: 

  • the individual merely acts on behalf of an actual beneficial owner as the beneficial owner’s nominee, intermediary, custodian, or agent; 
  • the individual is an employee of the reporting company and
    • they have substantial control over, or get economic benefits from, the reporting company solely because of their employee status  and
    •  the individual is not a senior officer of the reporting company; 
  • the individual’s only interest in the reporting company is a future interest through a right of inheritance, such as through a will providing a future interest in a company; or (iv) the individual is a creditor of the reporting company; 
  • the individual is a minor; or
  • the individual only has a future interest in the reporting company such as through inheritance; or
  • The individual is a creditor of the reporting company

Who is a “company applicant” and do they need to be reported under the CTA?

Company applicants are individuals filing on behalf of the company – this includes (a) the direct filer (the individual that directly filed the document creating the company); and (b) the one directing or controlling the action, i.e. the individual primarily directing or controlling the filing of the company formation. A reporting company can report no more than two company applicants. Company applicants only need to be reported for U.S. entities formed after Jan. 1, 2024, or foreign entities registered after Jan. 1, 2024. 

Who has access to beneficial ownership information?

FinCEN permits 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. FinCEN is still developing the rules that will govern access to and handling of beneficial ownership information; however, FinCEN has indicated that beneficial ownership information reported to FinCEN will be stored in a highly secure, non-public database.

Are changes in ownership required to be reported? Are there any penalties for failing to report? 

If an entity undergoes changes in who is a beneficial owner, transfers of ownership of interests, changes to an identifying document, or the reporting company becomes exempt, then the reporting company is required to file an updated report within 30 calendar days after the date the change occurs. If an inaccuracy is identified in a BOI report, the company must correct it no later than 30 days after the company became aware of the inaccuracy or had reason to know of it. There are no penalties for filing an inaccurate BOI report provided it is corrected within 90 calendar days of when it was filed.

However, if a company willfully fails to file a complete report, or willfully provides or attempts to provide false information, the reporting company and/or individual may be subject to civil and criminal penalties, including fines of $500 a day for each day the violation continues, up to $10,000, and up to two years in prison. It is important to note that senior officers of the company may be held personally accountable for such violations.

Are there any filing fees for the BOI report under the CTA?

As of January 2024, there is no fee associated with filing the report.

O&A is here to help with your BOI report and CTA compliance

O&A is here to discuss any questions you may have about the CTA and BOI report, and assist your reporting companies with the initial report to ensure timely compliance. 

O&A is an elite team of attorneys committed to helping clients achieve their objectives — efficiently and effectively. The firm represents some of the biggest companies in technology and interactive entertainment, as well as some of the world’s most innovative entrepreneurs and emerging growth companies. For more information, please visit https://oandapc.com.O&A’s StartupProgram.com (SUP) is designed to support entrepreneurial startups, offering complete company formation services delivered through an efficient platform coupled with an exclusive e-learning curriculum designed for founders. SUP gets startups up and running at a much lower cost than working with a big law firm – and without the risks of using do-it-yourself legal alternative websites. Visit SUP to learn more or book a demo of the service today.