Updated as of December 11, 2023

This article updates and provides new information and guidance and replaces our original article dated August 3, 2023.

On January 1, 2024, the Corporate Transparency Act (the “Act” or the “CTA”) will take effect. This new federal law is expected to affect about 32.6 million small and medium-sized businesses in unregulated industries during its first year, and 5 million additional companies each year in years 2-10. If the Act applies, a company may be required to report information about the people who own or control it—the company’s beneficial owners—to the U.S. Treasury Department’s Financial Crimes Enforcement Network or FinCEN. If a business is otherwise regulated or larger in size than small or medium under the CTA, exemptions may apply. If a company is subject to an exemption, it will not have to comply with the CTA unless circumstances change. The CTA requires smaller and medium-sized businesses to file with a national database in 2024 based on their date of formation. Ongoing monitoring and notification of changes in their reported information are also required, with only a short 30-day turnaround time for reporting such changes. The “reporting company”– any firm subject to the CTA’s reporting requirements–is responsible for the filing, and the filing requires three categories of information: (1) Reporting Company information; (2) Beneficial Owner information (“BOI”); and (3) Company Applicant information (only required if the entity is formed on or after January 1, 2024).

Reporting company reports must include information such as legal names and trade names or DBAs, addresses, the jurisdiction of formation or registration, and taxpayer identification numbers (TINs). Beneficial owner and company applicant reports are provided at the individual level and must include legal name, birthdate, address (in most cases, a residential street address), an identifying number from a driver’s license or passport (or other approved document), and an image of that approved document. In most instances, the information must be updated any time the reported information is changed. This process can be somewhat simplified by applying for a FinCEN identifier (which is optional), after which the individual is allowed to use the identifier number rather than submit personal information for each report subject to updating requirements.

Violations of the reporting obligations can incur (a) a civil penalty of not more than $500 for each day that the violation continues or has not been remedied; and (b) a fine of not more than $10,000, imprisonment for not more than two years, or both. The statute and regulations do, however, limit violations to willful conduct.

The CTA governs corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. The CTA may involve the following businesses and industries in particular: Agriculture, Real Estate, Construction, Estate Planning, Privately Held Businesses and Enterprises, Developers, Franchises, International, Corporate, Intellectual Property, Mergers and Acquisitions, Wealth Planning, Entertainment, Tribal Entities, and Alaska Native Corporations.

WHAT TO DO NOW: To prepare for the CTA, companies should review their existing and expected business structure in consultation with their lawyers, and determine whether the CTA applies. To begin, look at the entity type and determine whether the business is either: (a) created by the filing of a document with the Secretary of State or similar office under the law of a state or Indian tribe; or (b) formed under the law of a foreign country AND registered to do business in any state or tribal jurisdiction, by the filing of a document with a Secretary of State or similar office under the laws of a state or Indian tribe. If neither of those situations applies, the business does not have to comply with the CTA. If one of those situations does apply, then check to see if one of the 23 statutory exemptions applies. If none of the exemptions applies, and the CTA does, companies in consultation with their lawyers should consider what process to use to gather the required information, how it will be reported to FinCEN in a timely manner, and how to monitor that information in the future. As an existing business, the reporting company will have until January 1, 2025, to file. FinCEN is not accepting reports until January 1, 2024. However, if the entity is formed in 2024, the company will have 90 days to file (with the filing deadline reduced to 30 days for entities formed after December 31, 2024). Thus, if a company plans to form an entity in 2024, it might consider forming the entity in 2023.  There is no fee for reporting to FinCEN. Businesses should consult with a lawyer of their choosing with regard to whether the CTA will apply. See also Practical Tips–Getting Ready for CTA. Many questions about this Act remain open, and further guidance is expected in the future.

DISCLAIMER: At this time, Schwabe, Williamson & Wyatt, P.C. is evaluating how best to assist clients that may have questions about the CTA and CTA reporting obligations, but any legal advice regarding reporting obligations or application of the CTA to any client will require a new engagement with the firm. If your company is an existing client of the firm and may be a reporting company or has questions about the application of the CTA, please be aware that the firm’s current engagement DOES NOT INCLUDE legal advice regarding your company’s reporting obligations or compliance with the CTA.

Based on the current guidance, for more information, please see the following areas (PLEASE FOLLOW THE LINKS):

 

Background and the Why?

The CTA was enacted on January 1, 2021, as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021. The CTA describes who must file a report, what information must be provided, and when a report is due. These requirements were intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity while minimizing the burden on entities doing business in the United States. In FAQ A.2 (as defined below), FinCEN further states that the law is “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.” Through the Act, Congress directed FinCEN to establish and maintain a national registry of beneficial owners of entities that are deemed “reporting companies.” FinCEN believes that collecting BOI will strengthen national security and make it harder for criminals and other bad actors to hide from the law.

In December 2021, FinCEN published a Notice of Proposed Rulemaking and sought public comments. In September 2022, FinCEN issued its final rule on Reports of Beneficial Ownership Information, 31 CFR §1010.380 (the “Final Rule”) with Supplementary Information (“Supplementary Information”) pursuant to the Act. The Final Rule goes into effect on January 1, 2024, with all initial reporting for existing reporting companies required to be filed by January 1, 2025. For new businesses created on or after January 1, 2024, and before January 1, 2025, FinCEN confirmed in a November 30, 2023 final rulemaking that initial reporting is due within 90 days of formation or registration. Businesses created on or after January 1, 2025 will need to file initial reporting within 30 days of formation or registration. The Supplementary Information contains a substantial preamble that explains many features of the final regulation and the basis for the rule. For purposes of this article, the Final Rule and Supplementary Information will be referred to as the “Final Rulemaking.”

The Final Rulemaking addresses, among other things, who must file, when they must file, and what information they must provide; it also addresses the beneficial owner portion of the CTA. FinCEN expects to issue further clarification and guidance, including frequently asked questions and help lines, to assist in understanding and implemention of the Act.

The Department of Treasury issued a “Beneficial Ownership Information Reporting Frequently Asked Questions” to clarify requirements for reporting information on beneficial owners and company applicants (a “FAQ” or collectively, the “FAQs). The FAQs are explanatory only and do not supplement or modify any obligations imposed by statutes or regulation. The FAQs are updated and published periodically. The publication date of the FAQs is in the upper right corner of the PDF version of the FAQs, and each FAQ has an issued date. Please check https://www.fincen.gov/boi-faqs for the most recent version of the FAQs under Small Business Resources. For purposes of this article, we refer to the FAQ, then the question outline reference and the issued date in parenthesis. An example is FAQ D.7 (9/29/2023).

FinCEN also publishes a “Small Entity Compliance Guide” (the “Guide”) to assist the small business community in complying with the beneficial ownership information reporting rule. This Guide is intended to: (a) describe each of the BOI reporting rule’s provisions in simple, easy-to-read language; (b) answer key questions; and (c) provide interactive checklists, infographics, and other tools to assist businesses in complying with the BOI reporting rules. The Guide will be updated periodically with new or revised information. FinCEN is to provide additional guidance on how to submit beneficial ownership information “soon.” Please check https://www.fincen.gov/boi/small-entity-compliance-guide for the most recent version of the Guide under Small Business Resources.

Who Must Report

Beginning on January 1, 2024, domestic and foreign reporting companies must file reports with FinCEN that provide information about the reporting company, beneficial owners, and company applicants, if applicable. The name of the CTA, “Corporate Transparency Act” is a misnomer; it applies to all “reporting companies.”

Not all companies are required to report BOI to FinCEN under the Final Rulemaking. Companies are required to report only if they meet the Final Rulemaking’s definition of a “reporting company” and do not qualify for an exemption.

The first step is to determine whether the company is a “reporting company,” and then whether the reporting company is exempt from the reporting requirements.

Reporting Company

Reporting Company Definition: Reporting company means a corporation, limited liability company, or other similar entity that is (a) created by the filing of a document with a Secretary of State or a similar office under the law of a state or Indian Tribe; or (b) formed under the law of a foreign county and registered to do business in the United States by the filing of a document with the Secretary of State or a similar office under the law of a state or Indian Tribe.

  • A key factor is the filing of a document with the state’s Secretary of State or a similar office. At this time, further guidance is expected regarding what constitutes a “similar office,” which may include a court.
  • Trusts may or may not be a “reporting company” depending on state law. General partnerships will likely not be reporting companies, but limited partnerships, limited liability partnerships, and limited liability limited partnerships likely will be. Sole proprietorships are not usually created by a filing and likely would not be reporting companies. Companies should consult with a lawyer of their choosing to determine whether they are a reporting company.
  • For the definition of “reporting company,” (a) a “state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States; and (b) an “Indian tribe” means any Indian or Alaska Native tribe, band, nation, pueblo, village, or community that the Secretary of Interior acknowledges to exist as an Indian tribe (see section 102 of the Federally Recognized Indian Tribe Act of 1994).
  • Chart 1 of the Guide shows how to analyze whether the company is a “reporting company.” The starting inquiry is under which law was the company created or formed:
    • U.S. laws (including laws of the states and Indian tribes); if yes, is the company a corporation, limited liability company, or company “created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe”; if yes, it is a reporting company; if no, it is not a reporting company

OR

    • laws of a foreign country; if yes, has the company registered to do business in any U.S. State or Tribal jurisdiction by filing a document with a secretary of state or similar office of the State or tribe; if yes, it may be a foreign reporting company; if no, it is not a reporting company
  • The Act and Final Rulemaking exempt 23 specific types of entities from the definition of a reporting company, which generally include entities that already have to report similar information to the federal government via other statutes and/or regulations (e.g., banks and financial institutions, dealers in securities, insurance companies, credit unions, tax-exempt entities registered with the IRS, public utilities, and some types of larger companies); or “large operating entities; or subsidiaries or inactive companies.” See “What are the exemptions?”
  • Tribal businesses: please see “The Corporate Transparency Act: An Overview for Tribal Businesses”
  • Alaska Native Corporations: please see “The Corporate Transparency Act: An Overview for ANCs”

Specific Guidance for Trusts: FAQ C.3. (11/16/2023) notes that only trusts created by the filing of a document with a secretary of state or similar office are considered reporting companies. A trust’s qualification as a reporting company will therefore depend heavily on state-specific filing requirements. FAQ C.4. (11/16/2023) further provides that the registration of a trust with a court of law merely to establish the court’s jurisdiction over any disputes involving that trust does not make the trust a reporting company.

Reporting Company Exemptions: The Act and Final Rulemaking exempt 23 categories of specific entities from being treated as a reporting company. Most exemptions do not directly apply to small businesses and are directed toward larger operating companies. These 23 categories can be divided into five (5) areas: (a) Regulated entities—20 of the exemptions are generally directed at those entities that are already regulated and report similar information to federal authorities; (b) “Large operating companies”—entities that meet certain requirements,—see below; (c) Certain subsidiaries–entities whose ownership interests are controlled or wholly owned by certain exempt entities see below; (d) “Inactive entities”–entities that meet certain conditions see below; and (e) Secretary of Treasury–the Secretary of Treasury may determine to make exemptions, but at this time has chosen not to make any additional exemptions. See Chart 2 of the Guide for a list of exemption short titles. The categories are:

(a) Regulated entities exemptions: Below is a summary list of the 20 types of regulated entities that are exempted; however, please note that specific criteria and additional details on each exemption are set out in the Final Rulemaking. In consultation with their lawyers, companies should consult the text of the regulations before concluding that an entity qualifies for an exemption:

(b) Large operating company exemption (Exemption #21)—An entity qualifies for this exemption if all six of the following criteria apply:

  • The entity employs more than 20 full-time employees, when applying the meaning of full-time employee provided in 26 C.F.R. § 54.4980H-1(a) and 54.4980H-3;
    • For purposes of 26 C.F.R. § 54.4980H-1(a) and 4980H-3: (i) “employee” means “an individual who is an employee under the common-law standard,” but a “leased employee,” a sole proprietor, a partner in a partnership, a 2-percent S corporation shareholder, or a worker described in Section 3508 is not an employee (26 CFR 54.4980H-1(a)(15), and (ii) “full-time employee” within 26 CFR 54.4980H-1(a) and 54.4980H-3 are based on hours of service, monthly equivalency, or weekly rule, depending on the circumstances.
    • The references in the Final Rulemaking and the Guide look to the Internal Revenue Code and related regulation under the Affordable Care Act to determine whether an employee is “full-time,” such as whether the employee works at least 30 hours per week or 130 hours per month, subject to adjustments and adaptations for salaried and other non-hourly workers, and paid vacation, holidays, jury duty, and similar paid days off are counted toward the 30/130 hour requirement. Chapter 1.2 of the Guide states “[i]n general, ‘full-time employee’ means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer.”
    • Note that at least 20 full-time employees must be employed by the reporting company and not by subsidiaries or affiliates. FAQ L.4. (11/16/2023) confirms that consolidation of employee count across multiple entities is not permitted in relation to the exemption.
    • Number of employees is determined as of the date of the report.
  • More than 20 full-time employees of the entity are employed in the “United States, as that term is defined in 31 C.F.R. § 1010.100(hhh)”;
  • The entity “has an operating presence at a physical office within the United States”—which means an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity; the location may be a personal residence;
  • The entity filed a Federal income tax or information return in the United States for the previous year that demonstrates more than $5 million in gross receipts or sales, as reported as gross receipts or sales; if the entity is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504, the applicable amount is the amount reported on the consolidated return for such group;
  • The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form; and
  • When gross receipts or sales from sources outside the United States, as determined under Federal income tax principles, are excluded from the entity’s amount of gross receipts or sales, the amount remains greater than $5,000,000.
    • “Gross receipts” for this purpose must be from U.S. sources only and must be calculated net of returns or allowances.
    • Receipts and sales of other entities owned by the legal entity and through which the legal entity operates are included in the legal entity’s gross receipts.

(c) Subsidiaries of certain exempt entities exemption (Exemption #22)—An entity qualifies for this exemption if the entity’s ownership interests are controlled or wholly owned, directly or indirectly, by any of the these types of entities described in Exemptions # 1, 2, 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, or 21. See below for interpretation of “controlled or wholly owned, directly or indirectly.”

  • Legal entities that are wholly owned or controlled by one or more Large Operating Companies (or are wholly owned or controlled by a combination of one or more Large Operating Companies and any one or more of the types of Act-exempt legal entities) are also exempt.
  • There is no corresponding exemption for a parent company or holding company of Large Operating Companies. FAQ G.2. (9/29/2023) states that a parent company cannot file a single BOI report on behalf of its group of companies, and any company that meets the definition of a reporting company and is not exempt is required to file its own BOI report.

(d) Inactive entities exemption (Exemption #23) — An entity qualifies for this exemption if all six of the following criteria apply: the entity (i) was in existence on or before January 1, 2020; (ii) is not engaged in active business; (iii) is not owned by a “foreign person” as defined in the Act, whether directly or indirectly, wholly or partially; (iv) has not experienced any change in ownership in the preceding twelve-month period; (v) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period; and (vi) does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

(e) Secretary of the Treasury’s exemptions: Congress gave the Secretary of Treasury, with the written concurrence of the Attorney General and the Secretary of Homeland Security, the ability, by regulation, to determine if there are other entities or classes of entities that should be exempt because the reporting (i) would not serve the public interest; and (ii) would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes. At this time, FinCEN has not included any additional exemptions.

Beneficial Owners

Beneficial Owners Definition: If the company is a reporting company, then it must report its “beneficial owners.” A beneficial owner is any individual who, directly or indirectly, (A) owns or controls at least 25% of the ownership interests of a reporting company, or (B) exercises “substantial control” over the reporting company (regardless of any actual ownership of the legal entity). An individual might be a beneficial owner through substantial control, ownership interest, or both. Chapter 2 of the Guide provides that reporting companies are not required to report the reason (i.e., substantial control or ownership interests) that an individual is a beneficial owner. Chapter 2 of the Guide further provides that a reporting company can have multiple owners, and that there is no maximum number of beneficial owners who must be reported. Chapter 2 of the Guide additionally provides:

For example, a reporting company could have one beneficial owner who exercises substantial control over the reporting company, and a few other beneficial owners who own or control at least 25 percent of the ownership interests of the reporting company. A reporting company could have one beneficial owner who both exercises substantial control and owns or controls at least 25 percent of the ownership interests of the reporting company.

In Chapter 3.2 of the Guide, FinCEN states that it expects every reporting company will be substantially controlled by one or more individuals, and therefore every reporting company will be able to identify and report at least one beneficial owner to FinCEN. If an individual qualifies as a beneficial owner, information about that individual must be reported to FinCEN in a reporting company’s BOI report (sometimes referred to as “BOIR”).

Exceptions: There are five exceptions to the definition of beneficial owner. Chapter 2.4 of the Guide provides that when an individual would otherwise be a beneficial owner of the reporting company qualifies for an exception, the reporting company does not have to report that individual in its BOI report to FinCEN. Chapter 2.4 of the Guide sets out checkboxes to help a company determine whether any exceptions apply. The term “beneficial owner” does not include:

  • Minor Child: An individual qualifies for this exception if the individual is a minor child, as defined under the law of the State or Indian tribe in which a domestic reporting company is created or a foreign reporting company is first registered, provided the reporting company reports the required information of a parent or legal guardian of the minor child as specified in the Act. Chapter 4.2 of the Guide notes that the exception only applies if a parent or legal guardian’s information is reported in lieu of the minor child’s information, and when the minor child reaches the age of majority, as defined by the law of the State or Indian tribe in which the reporting company was created or first registered, the exception no longer applies. At that time, if the individual is a beneficial owner, the reporting company must file an updated BOI report that provides the individual’s own information.
  • Nominee, intermediary, custodian or agent: An individual qualifies for this exception if the individual merely acts on behalf of an actual beneficial owner as the beneficial owner’s nominee, intermediary, custodian, or agent. In the Supplementary Information, FinCEN states: “FinCEN does not envision that the performance of ordinary, arms-length advisory or other third-party professional services to the reporting company” would cause the individual who provides those services to be a beneficial owner. And Chapter 2.4 of the Guide notes: “Individuals who perform ordinary advisory or other contractual services (such as tax professionals) likely qualify for this exception. In scenarios where this exception applies, the actual beneficial owner must still be reported.”
  • Employee: An individual qualifies for this exception if all three of the following criteria apply:
    • (i) the individual is an employee when applying the definition of “employee” provided in 26 C.F.R. § 54.4980H-1(a)(15), and Chapter 2.4 of the Guide states: “In general, the term employee means that an individual is subject to the will and control of the employer in what and how to do work, and that the employer may discharge the individual from work”
    • (ii) the individual’s substantial control over, or economic benefits from, the reporting company are derived solely from the employment status of the employee
    • (iii) the individual is not a senior officer of the reporting company
  • Inheritor: An individual qualifies for this exception if the individual’s only interest in a reporting company is a future interest through a right of inheritance, such as through a will that provides a future interest in a company.
    • In the Supplementary Information and in Chapter 2.4 of the Guide, FinCEN emphasizes that once an individual has acquired an ownership interest in an entity through inheritance, that individual owns that ownership interest and is potentially subject to the BOI reporting requirements. FinCEN noted that an individual who may in the future come to own an ownership interest in an entity through a right of inheritance does not have ownership interests until the inheritance occurs, and that such a future or contingent interest may exist through wills or other probate mechanisms that solely provide a future interest in an entity. However, FinCEN also noted that once an ownership interest is inherited and comes to be owned by an individual, that individual has the same relationship to the entity as any other individual who acquires an ownership interest through another means. FinCEN stated that the precise moment at which an individual acquired an ownership interest in an entity through inheritance may be subject to a variety of existing legal authorities, such as the terms of the will, the terms of a trust, applicable state laws, and other valid instruments. FinCEN intends the application of the inheritor exception and the meaning of a “right of inheritance” to conform to the governing legal authorities, and should those authorities not provide sufficient direction for purposes of the inheritor exception, FinCEN is prepared to consider supplemental guidance or FAQs.
  • Creditor: An individual qualifies for this exception if the individual is a creditor of a reporting company, and the term creditor means an individual who would meet the definition of a beneficial owner solely through rights or interests for the payment of a predetermined sum of money, such as a debt incurred by the reporting company, or a loan covenant or other similar right associated with such right to receive payment that is intended to secure the right to receive payment or enhance the likelihood of repayment. Chapter 2.4 of the Guide provides this example: “an individual qualifies as the creditor exception if the individual is entitled to payment from the reporting company to satisfy a loan or debt, so long as this entitlement is the only ownership interest the individual has in the reporting company.”

Accountants and Lawyers: FAQ D.6. (9/18/2023) provides that accountants and lawyers generally do not qualify as beneficial owners, but that may depend on the work being performed. That is, accountants and lawyers who provide general accounting or legal services are not considered beneficial owners because ordinary, arms-length advisory or other third-party professional services to a reporting company are not considered to be “substantial control.” Furthermore, a lawyer or accountant who is designated as an agent of the reporting company may qualify for the “nominee, intermediary, custodian, or agent” exception. However, an individual who holds the position of general counsel in a reporting company is a “senior officer” of that company and is therefore a beneficial owner.

“Partnership Representatives” and “Tax Matters Partners”: FAQ D.10. (11/16/2023) provides that a reporting company’s “partnership representative” or “tax matters partner” may be a beneficial owner, if such an individual exercises substantial control over the reporting company, or otherwise owns/controls at least 25% of the company’s ownership interests. A partnership representative or tax matters partner, if serving in the role of designated agent, may however qualify for the “nominee, intermediary, custodian, or agent” exception.

Ownership or Control:

  • Reporting companies are required to identify all individuals who own or control at least 25 percent of the ownership interests of the company. Chapter 2.2 of the Guide states that any of the following may be an ownership interest: (i) equity, stock, or voting rights; a capital or profit interest; (ii) convertible instruments; (iii) options or other non-binding privileges to buy or sell any of the foregoing; and (iv) any other instrument, contract, or other mechanism used to establish ownership. A reporting company may have multiple types of ownership interests. Chart 4 of the Guide identifies ownership interest types and provides examples. Chapter 2.3 of the Guide provides some ownership interest questions to help identify what types of ownership interests are relevant to the reporting company, and Chapter 2.2 of the Guide states that a company may have more than one type of ownership interest.
  • “Ownership interest” is broadly defined as and means:
    • Equity, Stock, or Voting Rights: any equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust; in each such case, without regard to whether any such instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights
    • Capital or Profit Interest: any capital or profit interest in an entity, and per Chart 4 and Chapter 2.2 of the Guide: any interest in the assets or profits of a company organized as an LLC, which is similar to stock in a corporation and sometimes referred to as a “unit”
    • Convertible Instruments: any instrument convertible, with or without consideration, into equity, stock, or voting rights, or capital or profit interest. The Final Rulemaking and Chart 4 and Chapter 2.2 of the Guide provide the following examples: any future on any convertible instrument, and any warrant or right to purchase, sell, or subscribe to such share or interest, regardless of whether characterized as debt
    • Option or Privilege: any put, call, straddle, or other option or privilege of buying or selling equity, stock, or voting rights, capital or profit interest, or convertible instruments, EXCEPT if the option or privilege is created and held by others without the knowledge or involvement of the reporting company
    • Catch-All: “any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership”
  • Ownership or control of ownership interest. An individual may directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, relationship, or otherwise, including:
    • Direct: joint ownership with one or more other persons of an undivided interest in such ownership interest
    • Indirect:
      • through ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control the ownership interests of the reporting company
      • through another individual acting as a nominee, intermediary, custodian, or agent on behalf of such individual
    • Note for trusts: The following individuals may hold ownership interest through a trust or similar arrangement: (1) a trustee or other individual with the authority to dispose of trust assets; (2) a beneficiary who: (i) is the sole permissible recipient of trust income and principal; or (ii) has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or (3) as a grantor or settlor who has the right to revoke the trust or otherwise withdraw the trust assets;
      • Examples in the Supplementary Introduction include:
        • an individual trustee of a trust (or similar arrangement), or other individual, with the power to dispose of trust assets. The reference to “other individual” in this context seems to imply that individuals serving in such fiduciary positions with regard to the trust, such as investment directors, advisors, or committee members, or even in non-fiduciary positions, such as trust protectors or persons holding veto powers over certain actions of the trustee, could be deemed to have beneficial ownership depending upon the circumstances.
        • a beneficiary of a trust who is the sole permissible recipient of income or principal of the trust or who can withdraw substantially all of the assets from the trust
        • The grantor of any trust will be deemed to control or own the ownership interest of the reporting company if the grantor has the right to revoke the trust or otherwise withdraw assets of the trust.
  • Calculation of the total ownership interests of a reporting company: In determining whether an individual owns or controls at least 25 percent of the ownership interests of a reporting company, the total ownership interests that an individual owns or controls, directly or indirectly, are calculated as a percentage of the total outstanding ownership interests of the reporting company as follows:
    • ownership interests of the individual are calculated at the present time (meaning the date of the report), and any options, privileges, convertible instruments, or similar interests of the individual are treated as exercised
    • for reporting companies that issue capital or profit interests (including entities treated as partnerships for federal income tax purposes), the individual’s ownership interests are the individual’s capital and profit interests in the entity, calculated as a percentage of the total outstanding capital and profit interests of the entity
    • If the reporting company issues shares of stock, and the company is a corporation (including a Subchapter S corporation) or is not a corporation but is treated as one for federal income tax purposes, the applicable percentage is the greater of: (1) the total combined voting power of all classes of ownership interests of the individual as a percentage of total outstanding voting power of all classes of ownership interests entitled to vote, or (2) the total combined value of the ownership interests of the individual as a percentage of the total outstanding value of all classes of ownership interests.
      • Step 2 of Chapter 2.3 of the Guide states that generally the calculation of an individual’s ownership interest is as a percentage of the total shares of stock issued; however, if some of the shares have more voting power or represent more of the value of the company than other shares (for instance, if the company issues both series A shares with one vote per share and series B shares with ten votes per share), then the two calculations are needed and the individual’s ownership interest will be the larger of the two percentages;
    • If the facts and circumstances do not permit the calculations described above to be performed with reasonable certainty, any individual who owns or controls 25 percent or more of any class or type of ownership interest of a reporting company is deemed to own or control 25 percent or more of the ownership interests of the reporting company.
    • Finally, if the individual owns any interest in the reporting company through an Act-exempt legal entity but also owns an interest outside of its interest in the Act-exempt legal entity, then the interests of the individual are to be aggregated with the interest held through the Act-exempt legal entity to ascertain whether the individual is a beneficial owner. For example, if the individual owns a 23% interest in the reporting entity through one or more Act-exempt legal entities and a 2% director interest in the reporting company, that individual is a beneficial owner for purposes of the Act.
    • In Step 3 of Chapter 2.3 of the Guide, there is some guidance on how to determine who owns or controls 25 percent or more of the ownership interests.

Substantial Control:

“Substantial control” over a reporting company is based on a variety of facts and circumstances, and multiple individuals can have substantial control, all of whom are beneficial owners for purposes of the Act. Reporting companies are required to identify all individuals who exercise substantial control, and there is no limit to the number of individuals who can be reported for exercising substantial control. “Substantial control” includes (a) service as a senior officer, (b) has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body), and (c) the ability to direct, determine, or have substantial influence over important decisions made by the reporting company as specified below. There are also some limited exceptions. Overall, the elements to determine a “beneficial owner” include: (i) ownership and control; and (b) substantial control.

An individual exercises substantial control over a reporting company if the individual meets any of the four general criteria: (a) the individual is a senior officer; (b) the individual has authority to appoint or remove certain officers or a majority of the board of directors (or similar body); (c) the individual is an important decision-maker; and (d) the individual has any other form of substantial control over the reporting company. Chart 3 of the Guide shows the substantial control indicators:

  • Senior officer: Senior officers are all deemed to have substantial control. The term “senior officer” means any individual holding the position or exercising the authority of a president, chief financial officer (CFO), general counsel (GC), chief executive officer (CEO), chief operating officer (COO), or any other officer, regardless of official title, who performs a similar function as these officers.
  • Appointment or Removal Authority: any individual with the ability to appoint or remove any senior officer or a majority of the board of directors or similar body.
  • Important Decision-Maker: any individual who directs, determines, or has substantial influence over important decisions made by the reporting company. The Final Rulemaking and Chart 3 and Chapter 2.1 of the Guide provide a non-exclusive list of important decisions, which includes decisions regarding the reporting company:
    • Business, such as (i) the nature, scope, and attributes of the business, (ii) the selection or termination of business lines, or ventures, or geographic focus, of the reporting company, or (iii) the entry into or termination, or the fulfillment or non-fulfillment of significant contracts
    • Finance, such as (i) the sale, lease, mortgage, or other transfer of any principal assets; (ii) major expenditures or investments, issuance of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company; or (iii) compensation schemes and incentive programs for senior officers
    • Structure, such as (i) reorganization, dissolution, or merger; or (ii) amendments of any substantial governance documents of the reporting company, including articles of incorporation or similar formation documents, bylaws, and significant policies or procedures
  • Catch-All—any other direct or indirect exercise of substantial control. An individual may directly or indirectly, including as a trustee of a trust or similar arrangement, exercise substantial control over a reporting company through:
    • Direct:
      • If the company has a board of directors or similar body AND if the individual has the ability to appoint or remove a majority of that board or body. See Chapter 2.3 of the Guide – “Substantial control question” question 3. FAQ D.9. (9/29/2023) further provides that a member of a reporting company’s board of directors is not always a beneficial owner, and whether a particular director meets any of the substantial control criteria must be decided on a director-by-director basis.
      • Ownership or control of the majority of the voting power or voting rights of the reporting company
      • Rights associated with a financing arrangement or interest in a company
    • Indirect:
      • Control over one or more intermediary entities that separately or collectively exercise substantial control over a reporting company
      • Arrangements or financial or business relationships, whether formal or informal, with other individuals or entities acting as nominees
      • Or any other contract, arrangement, understanding, relationship, or otherwise
    • In Chart 3 of the Guide, FinCEN states: “Control exercised in new and unique ways can still be substantial. For example, flexible corporate structures may have different indicators of control than the indicators included [in this Guide].”
    • Chapter 2.3 of the Guide sets out some questions to help identify which individuals exercise substantial control over the company, and states that multiple criteria can apply to one individual.
    • Unaffiliated company: FAQ D.8. (9/29/2023) provides that an unaffiliated company that provides a service to the reporting company by managing its day-to-day operations, but does not make decisions on important matters is not a beneficial owner of the reporting company because a beneficial owner must be an individual. Any individual that exercises substantial control over the reporting company through the unaffiliated company must be reported as beneficial owners of the reporting company. The FAQ notes that individuals who do not direct, determine, or have substantial influence over important decisions made by the reporting company, and do not otherwise exercise substantial control, may not be beneficial owners of the reporting company.

Examples of Beneficial Owners:  In Chapter 2.3 of the Guide, FinCEN provides a few examples of how to determine beneficial owners:

  • “Example 1: The reporting company is a limited liability company (LLC). Individual A is the sole owner and president of the company and makes important decisions for the company. No one else owns or controls ownership interests in the company or exercises substantial control over your company. [Infographic intentionally omitted]

Individual A is beneficial owner of the reporting company in two different ways, assuming no other facts. First, Individual A exercises substantial control over the company because Individual A is a senior officer of the company (the president). Second, Individual A is also a beneficial owner because Individual A owns 25 percent or more of the reporting company’s ownership interests.

Because no one else owns or controls ownership interests in the LLC or exercises substantial control over it, and assuming there are no other relevant facts, Individual A is the only beneficial owner of the reporting company.”

  • “Example 2: The reporting company is a corporation. The company’s total outstanding ownership interests are shares of stock. Three people (Individuals A, B, and C) own 50 percent, 40 percent, and 10 percent of the stock, respectively, and one other person (Individual D) acts as the President for the company, but does not own any stock. [Infographic intentionally omitted]

Assuming there are no other facts, Individuals A, B, and D are all beneficial owners of the company and their information must be reported. Individual C is not a beneficial owner.

Individual A owns 50 percent of the company’s stock and therefore is a beneficial owner because 50 percent is greater than the threshold of 25 percent or more of the company’s ownership interests.

Individual B owns 40 percent of the company’s stock and therefore is a beneficial owner [because] 40 percent is also greater than the threshold of 25 percent or more of the company’s ownership interests.

Individual C is not a senior officer of the company and does not directly or indirectly exercise any substantial control over the company.

Individual C also owns 10 percent of your company’s stock, which is less than the 25 percent or greater interest needed to qualify as a beneficial owner by virtue of ownership interests. Individual C is therefore not a beneficial owner of the company.

Individual D is president of the company. As a senior officer of the company, Individual D exercises substantial control over the company and is therefore a beneficial owner, regardless of whether or not Individual D owns or controls 25 percent or more of the company’s ownership interests.”

  • “Example 3: The reporting company is an LLC with two managers, Individuals A and C. Individual A also owns 50 percent of the ‘membership units’ in the LLC while Individual C does not. Individual B owns the remaining membership units in the LLC but is not a manager. [Infographic intentionally omitted but shows that Individual C is also a manager]

Owners of membership units (which are a type of ‘capital or profit interest’ ownership interest) in an LLC are sometimes called ‘members’ of the LLC. A member may not automatically be required, or authorized, to make decisions for the LLC; depending on the internal organization of the LLC, however, a member may also be a ‘manager.’ In this example, Individual A is a member and a manager. Individual B is a member but not a manager, while Individual C is a manager but not a member. All three are beneficial owners of the reporting company.

Individual A is a manager of the LLC and owns 50 percent of the company’s membership units. Individual A exercises substantial control over the LLC because Individual A makes important decisions for the LLC in the role of manager. Individual A also owns 50 percent (which is greater than the 25 percent or more threshold) of the company’s ownership interests. Individual A is therefore a beneficial owner of the reporting company in two different ways: by exercising substantial control and owning or controlling 25 percent or more of the ownership interests.

Individual B owns 50 percent (which is greater than the 25 percent or more threshold) of the LLC’s membership units. That makes Individual B a beneficial owner of the LLC even though Individual B is not a manager and does not make important decisions or otherwise exercise substantial control over the LLC.

Individual C is a manager of the LLC and makes important decisions on its behalf, thereby exercising substantial control over it. Individual C does not own any of the LLC’s membership units (the ownership interests) but is nevertheless still a beneficial owner because the individual exercises substantial control.”

  • “Example 4: The reporting company is a corporation with multiple indirect owners through Company Y and Company Z.

[Infographic intentionally omitted, but shows (A) the Reporting Company as a corporation and ownership interest as stock; (B) Direct Owners as Company Y (50%) and Company Z (50%); (C) Indirect Owners of Company Y: (i) Individual A as CFO and holding 30% of stock and (ii) Individual B holding 70% of stock; (D) Indirect Owners of Company Z: (i) Individual A as CFO and holding 25% of stock, (ii) Individual C as CEO and President and holding 25% of stock, (iii) Individual D as holding 25% of stock, and (iv) Individual E holding 25% of stock; and (E) Individual F “directs important decisions through board representation.”]

In this example, Individuals A, B, C, and F are beneficial owners.

Individual A is the reporting company’s Chief Financial Officer and is therefore a senior officer, which under the Reporting Rule means that Individual A exercises substantial control over the company. Individual A also indirectly owns 27.5 percent of the reporting company’s stock through direct ownership of Company Y and Company Z, which each own 50 percent of the reporting company’s stock. (Individual A owns 30 percent of Company Y’s stock and 25 percent of Company Z’s stock. Therefore, Individual A owns 15 percent of the reporting company’s stock through Company Y (50% × 30% = 15%) and 12.5 percent of the reporting company’s stock through Company Z (50% × 25% = 12.5%). Adding these two percentages together equals 27.5 percent of the reporting company’s stock.) Individual A is therefore a beneficial owner in two different ways, by exercising substantial control and owning or controlling 25 percent or more of the ownership interests of the reporting company.

Individual B indirectly owns 35 percent of the reporting company’s stock through Company Y, which owns 50 percent of the reporting company’s stock. (Individual B owns 70 percent of Company Y’s stock (50% × 70% = 35%)). Individual B does not exercise substantial control. Individual B is a beneficial owner by owning or controlling 25 percent or more of the reporting company’s ownership interests.

Individual C is the reporting company’s Chief Executive Officer and president, and is therefore a senior officer who exercises substantial control. Individual C indirectly owns 12.5 percent of the reporting company’s stock. To calculate Individual C’s indirect ownership interests in the reporting company, multiply the ownership interest of Individual C in Company Z by the ownership interest of Company Z in the reporting company. Individual C owns 25 percent of Company Z’s stock and Company Z owns 50 percent of the reporting company’s stock. Therefore, Individual’s C ownership interests in the reporting company are 12.5 percent (25% × 50% = 12.5%), which is less than the 25 percent ownership interest threshold. Accordingly, Individual C’s ownership interests in the reporting company do not make Individual C a beneficial owner, but Individual C is nevertheless a beneficial owner because Individual C exercises substantial control over the reporting company.

Similar to Individual C, Individuals D and E own 25 percent of Company Z’s stock, and each therefore indirectly owns 12.5 percent of the reporting company’s stock. In contrast to Individual C, Individuals D and E do not exercise substantial control over the reporting company. Individuals D and E are not beneficial owners.

Individual F is on the company’s board of directors and makes important decisions on the reporting company’s behalf, thereby exercising substantial control over it. Individual F does not own or control any stock in the reporting company. Individual F is therefore a beneficial owner by exercising substantial control over the reporting company, but not through holding ownership interests in it.”

Company applicants

Required reporting: Only certain reporting companies must include information about their company applicants in their BOI reports. A reporting company is required to report its company applicants if it is either a:

  • Domestic reporting company created on or after January 1, 2024
  • Foreign reporting company first registered to do business in the United States on or after January 1, 2024

For all reporting companies created or registered prior to the effective date of January 1, 2024, information related to company applicants need not be reported. See Chapter 3.1 and Chart 5 of the Guide for company applicant reporting requirements.

Who is a Company Applicant: A Company applicant is (i) direct filer — any individual who directly files the document that creates or registers a reporting company; and (ii) directs or controls the filing action — any individual who is primarily responsible for directing or controlling the filing if more than one individual is involved in the filing of the document. There can be up to two individuals who qualify as company applicants: (a) the individual who directly files the document that creates, or first registers, the reporting company; and (b) if more than one person is involved with filing of the document, the individual who is primarily responsible for directing or controlling the filing. Chapter 3.2 of the Guide provides that “companies or legal entities cannot be company applicants.” Chart 6 of the Guide provides guidance for the company application definition.

  • Direct filer: Chapter 3.2 of the Guide states that “This individual would have actually physically or electronically filed the document with the secretary of state or similar office.”
  • FAQ E.3 (9/18/2023) discusses when an accountant or a lawyer are considered a company applicant. Under that FAQ, an accountant or lawyer could be a company applicant depending on their role in filing the document that creates or registers a reporting company, and in many cases, FinCEN notes that company applicants may work for a business formation service or law firm. That FAQ provides the following example: “For example, an attorney at a law firm that offers business formation services may be primarily responsible for overseeing preparation and filing of a reporting company’s incorporation documents. A paralegal at the law firm may directly file the incorporation document at the attorney’s request. Under those circumstances, the attorney and the paralegal are both company applicants for the reporting company.” The Supplementary Information also notes that for most law firms, there will be two company applicants—the paralegal or legal assistant that files the document and the lawyer primarily responsible for directing or controlling the filing.
  • FAQ E.4. (11/16/2023) notes that a company applicant may not be removed from a BOI report, even if that company applicant no longer has a relationship with the reporting company.
  • Chapter 3.2 of the Guide provides the following examples to illustrate how to identify company applicants in common company creation or registration scenarios:
    • “Example 1: Individual A is creating a new company. Individual A prepares the necessary documents to create the company and files them with the relevant State or Tribal office, either in person or using a self-service online portal. No one else is involved in preparing, directing, or making the filing.

Individual A is a company applicant because Individual A directly filed the document that created the company. Because Individual A is the only person involved in the filing, Individual A is the only company applicant. State or Tribal employees who receive and process the company creation or formation documents should not be reported as company applicants.

    • Example 2: Individual A is creating a company. Individual A prepares the necessary documents to create the company and directs Individual B to file the documents with the relevant state or Tribal office. Individual B then directly files the documents that create the company.

Individuals A and B are both company applicants—Individual B directly filed the documents, and Individual A was primarily responsible for directing or controlling the filing. Individual B could, for example, be Individual A’s spouse, business partner, attorney, or accountant; in all cases, Individuals A and B are both company applicants in this scenario.”

Information to be Reported

The reporting company must collect and report the following information: (i) reporting company information; (b) beneficial owner information; and (c) if applicable, company applicant information. See Chart 7 of the Guide—Required Information Checklists.

Reporting Company Information: The initial reports by a reporting company must include the following information for the company itself:

Beneficial Owner and Company Applicant Information: Each beneficial owner and company applicant (if applicable) must provide similar information to that above, including:

  • a full legal name
  • the date of birth
  • the individual’s residential street address (see below for attorney or corporate formation agent)
    • In Chapter 4.1 of the Guide, FinCEN notes that: (i) for a beneficial owner, the reporting company must report the residential street address; and (ii) for a company applicant, the reporting company must report the individual’s residential street address, except for company applicants who form or register a company in the course of their business, such as paralegals, then for such individuals, the business street address is reported and that address is not required to be in the United States.
    • FAQ F.4. (9/18/2023) states: “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.”
    • FinCEN recognizes that there may be situations in which the individual feels unsafe disclosing their residential street address, such as victims of domestic violence or other violent crimes. If general future guidance does not address this issue, FinCEN will review each situation on a case-by case basis.
  • the entity’s current business street address, if the company applicant is an entity that forms or registers legal entities in the course of such company applicant’s business
  • a unique identifying number and the issuing jurisdiction from one of the following documents: (a) a non-expired passport issued to an individual by the United States government; (b) a non-expired identification document issued to the individual by a State, local government, or Indian Tribe for the purpose of identifying that individual; (c) a non-expired driver’s license issued to the individual by a State; or (d) only if the individual does not have a document described in (a) to (c), a non-expired passport issued by a foreign government (“Acceptable Identification Document”)
  • an image of the document from which the unique identifying number was obtained, with the individual’s photograph.

FAQ G.4. (11/16/2023) clarifies that initial reporting must only contain the beneficial owners at the time of filing. Reporting companies need not report historical beneficial owners.

Special reporting rules: Special reporting rules exist for reporting companies owned by exempt entities, ownership by minor children, foreign pooled investment vehicles, and company applicants for companies in existence prior to the effective date. Chapter 4.2 of the Guide provides guidance on those situations as follows:

  • Owned by exempt entity: The reporting company does not need to report information about any beneficial owner whose ownership interests in a reporting company are held through one or more entities, all of which are themselves exempt from the reporting company definition. If this special rule applies, then the reporting company may report the names of all of the exempt entities instead of information about the individual who is a beneficial owner of the company through ownership interests in those exempt entities.
    • Chapter 4.2 of the Guide provides this example: “Example: A large operating company owns 50% of the ownership interests in your company. Large operating companies are exempt from the reporting company definition (see Exemption #21). Individual A owns 50% of the large operating company, and therefore owns 25% of the ownership interests in your company (50% × 50% = 25%). You may report the name of the large operating company instead of Individual A’s personal information.”
    • Furthermore, FAQ D.7 (9/29/2023) provides that if a beneficial owner owns or controls their ownership interests 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, this special rule does not apply when an individual owns or controls ownership interests in a reporting company through both exempt and non-exempt entities, and in that case, the reporting company must report the individual as a beneficial owner (if no exception applies), but the exempt companies need not be listed.
  • Minor child: The reporting company does not need to report information about a beneficial owner of the reporting company who is a minor child, provided the company has reported the required information about the minor child’s parent or legal guardian. If this special rule applies, the reporting company may report the required information about the child’s parent or legal guardian instead of the child. If the reporting company reports a parent or legal guardian’s information instead of a minor child’s information, then the reporting company must indicate in the BOIR that the information relates to a parent or legal guardian of the minor child.
  • Foreign pooled investment vehicle: The reporting company does not need to report information about each beneficial owner and company applicant if the company was formed under the laws of a foreign country and would be a reporting company if not for the pooled investment vehicle exemption (Exemption #18). If this special rule applies, the reporting company must report one individual who exercises substantial control over the company. The reporting company does not need to report any company applicants. If more than one individual exercise substantial control over the company, the reporting company must report information about the individual who has the greatest authority over the strategic management of the company.
  • Company applicant reporting for existing companies: If the reporting company was created or registered before January 1, 2024, the reporting company does not need to report any company applicant information for the reporting company. If this special rule applies, do not report company applicants. Specify on the BOIR that the company was created or registered before January 1, 2024.

FinCEN Identifiers: A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual or a reporting company upon request after the individual or reporting company provides certain information to FinCEN. An individual or reporting company is not required to obtain a FinCEN identifier. An individual or reporting company may only receive one FinCEN identifier.FinCEN identifiers can be included in reports to FinCEN by the reporting company in lieu of providing the underlying information for that particular individual. On or after January 1, 2024, individuals may electronically apply for FinCEN identifiers by completing an electronic web form and providing the same four pieces of personal information and image that the reporting company must submit. After an individual submits an application, the individual will immediately receive a FinCEN identifier unique to that individual. A reporting company may also secure its own FinCEN identifier, but only after submitting its initial report and checking the box on the reporting form. If the reporting company wishes to request a FinCEN identifier after submitting its initial BOI report, it may submit an updated BOI report to request a FinCEN identifier, even if the company does not otherwise need to update its information. Individuals and entities that obtain FinCEN identifiers must update/correct the information within and in the same manner as required for updated/corrected reports under the Final Rule. Most individuals likely will prefer to use the FinCEN identifier process. The use of FinCEN identifiers is the subject of ongoing rulemaking and FinCEN anticipates it will provide additional guidance when that rulemaking is finalized. FinCEN is actively assessing options to allow individuals to deactivate a FinCEN identifier so they do not need to update the underlying personal information on an ongoing basis, and FinCEN will provide additional guidance on this functionality upon completion of that process. See Chapter 4.3 of the Guide and FAQs M.1, M.2, M.3, M.4, M.5, and M.6. (9/29/2023).

Timing and Forms of Reporting

Initial Filings: Entities formed or registered before the January 1, 2024, effective date must submit their initial report to FinCEN by January 1, 2025. Reporting companies formed or registered between January 1, 2024 and December 31, 2024 must submit their initial report within 90 calendar days of the earlier of the date on which the reporting company receives actual notice that its creation (or registration) has become effective, or the date on which the Secretary of State or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created or the foreign reporting company has been registered. For reporting companies formed or registered on or after January 1, 2025, the filing deadline is reduced to 30 days. In Chapter 5.1 of the Guide, FinCEN noted that notice practices vary by jurisdiction, and if the jurisdiction provides both actual and public notice, the timeline for when an initial BOI report is due starts on the earlier of the two dates notice is received. Entities that no longer meet the criteria for any exemption must file a report within 30 calendar days after the date that it no longer meets the criteria for any exemptions. See Chapter 5.1 of the Guide. FinCEN will consider additional guidance or FAQs, if there is a need for further clarification.

Updates: It is the responsibility of the reporting company to keep the report current with FinCEN. This is not an annual filing requirement; updates are required as often as there are changes. Any changes to required information previously submitted to FinCEN concerning the reporting company or beneficial owner (including any change with respect to who is a beneficial owner or information reported for any particular beneficial owner) require an updated report be filed with FinCEN within 30 calendar days after the date on which such change occurs. No update is needed for company terminations or dissolutions. Notably, the provisions for updated reports only apply to reporting companies themselves and their beneficial owners. Updates to company applicant information need not be reported. Updates are needed for newly exempt entities, when the estate of the deceased beneficial owner is settled, when a minor child attains the age of maturity, and any change to the name, date of birth, address, or unique identifying number changes on the provided image of an identifying document. In Chapter 6.1 of the Guide and FAQ H.2 (9/18/2023), FinCEN provides the following examples of changes or triggers that would require an updated BOI report:

  • Any change to the information reported for the reporting company, such as registering a new DBA
  • A change in beneficial owners, such as a new Chief Executive Officer, a sale that changes who meets the ownership interest threshold of 25 percent, or the death of a beneficial owner. Note: When a beneficial owner dies, resulting in changes to the reporting company’s beneficial owners, those changes must be reported within 30 days of when the deceased beneficial owner’s estate is settled. The updated report should, to the extent appropriate, identify any new beneficial owners.
  • Any change to a beneficial owner’s name, address, or unique identifying number provided in a BOI report. Note: If a beneficial owner obtained a new driver’s license or other identifying document that includes the changed name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.
  • When a beneficial owner that was a minor child reaches the age of majority, the reporting company must file an updated BOI report that identifies the individual as a beneficial owner and, if warranted, replaces their parent or legal guardian’s information with their own.

Corrections: Inaccurate information reported to FinCEN must be remedied via a corrected report, filed within 30 days after the date on which the reporting company becomes aware of or has reason to know of the inaccuracy. FAQ I.1. (9/29/2023) states this includes any inaccuracy in the required information provided about the reporting company, its beneficial owners, or its company applicants. However, there is a safe harbor for any person who has reason to believe that any report submitted by the person contains inaccurate information and voluntarily and promptly submits a report containing corrected information no later than 90 days after the date on which the person submitted the inaccurate report. The Act is clear that the safe harbor is only available for the 90-day period, even if the reporting company files a correction promptly after becoming aware or having reason to know that a correction is needed. Chapter 6.2 of the Guide states that there are no penalties for filing an inaccurate BOI report, provided it is corrected within 90 calendar days of when it was filed. Chapter 1.3 of the Guide further provides that should a person willfully fail to report complete or updated BOI to FinCEN, FinCEN will determine the appropriate enforcement response in consideration of its published enforcement factors.

No Annual Reporting: FAQ F.6. (11/16/2023) clarifies that there is no annual reporting requirement. Reporting companies must file initial and updated/corrected reports as noted above, but no continued annual filing is necessary.

Extensions: At this time, there are no provisions for extensions. However, FinCEN indicated it may consider providing guidance or relief as appropriate, depending on the facts and circumstances.  

Forms and Certifications: FinCEN will dictate the form of the reports. All reports must be certified by the person who files the report or the application that the information provided is “true, correct and complete.” The form to report BOI is not yet available. Once it is available, information about the form will be posted on FinCEN’s beneficial ownership information webpage. FinCEN views this as a certification by the reporting company itself and not the individuals who sign on behalf of the reporting company.

Electronic Filing: Reports are to be filed electronically using FinCEN’s secure filing system. FinCEN’s filing system is currently under development and will not be available until January 1, 2024. FinCEN will not accept BOI reports before January 1, 2024. FinCEN will publish instructions and other technical guidance on how to complete the BOI report form on its site www.fincen.gov/boi. FinCEN has noted that there may be certain circumstances in which a reporting company is unable to electronically file a BOI report through FinCEN’s secure filing system, and in those cases, the reporting company should contact FinCEN at www.fincen.gov/contact.

Exempt Entities: Exempt entities that have always been exempt have no filing requirement. See FAQ L.5 (11/16/2023). There is no procedure for such legal entity to secure a “certification” of its Act-exempt status. FinCEN “will continue to consider” whether to offer such a certification in the future.

Reporting Company That Becomes Exempt After Filing: If the reporting company filed a BOI report and later qualifies for an exemption from the reporting requirements, the company should file an updated BOI report to indicate it is newly exempt from the reporting requirements. Updated BOI reports should be filed electronically though the secure filing system. An updated BOI report for a newly exempt entity will only require that: (1) the entity identify itself; and (2) check a box noting its newly exempt status. See Chapter 6.3 of the Guide, FAQ J.1. (9/18/2023), and FAQ L.5. (11/16/2023).

Fee:  There will be no fee for submitting the report to FinCEN.

Third-Party Service Providers: Reporting companies may use third-party service providers to submit beneficial ownership information reports, and those providers will have the ability to submit the reports via FinCEN’s E-Filing system and/or an Application Programming Interface (API) assist reporting company. FAQ N.1. (9/29/2023) provides that technical specifications for the API will be made available at a later date.

Use of Attorneys and Accountants to Submit Filings: FAQ B.7 (11/16/2023) states the FinCEN expects that many, if not most, reporting companies will be able to submit the filing on their own and that reporting companies that need help meeting their reporting obligation can consult with professional service providers such as lawyers or accountants.

Penalties for Reporting Violations

For reporting violations, the CTA authorizes a civil penalty of up to $500 for each day that the violation continues or has not been remedied and criminal penalties, including a fine of up to $10,000 and/or imprisonment (not more than two years). Section 1.3 of Guide states that senior officers of an entity that fails to file a required BOI report may be held accountable for that failure. It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent reports or willfully fail to report complete or updated information. During the comment period, a number of commenters requested that FinCEN add protections for any reporting violations via negligence or other non-willful conduct, but FinCEN declined to alter the standard set by the CTA. In the Supplemental Information, FinCEN stated that “[w]illfulness is a legal concept that is well established in existing caselaw, and FinCEN will consider all facts relevant to a determination of willfulness when deciding whether to pursue enforcement actions.” FinCEN also noted that the Act does not prohibit the application of other available criminal or civil provisions to the extent they are applicable. The Final Rule states that a person is considered to have failed to report complete or updated information if: (A) the entity is required to report the information; (B) the reporting company fails to report such information; and (C) such person either causes the failure or is a senior officer of the entity at the time of the failure. FinCEN did note that “[a]ny assessment as to whether false information was willfully filed would depend on all of the facts and circumstances surrounding the certification and reporting of the BOI, but as a general matter, FinCEN does not expect that an inadvertent mistake by a reporting company acting in good faith after diligent inquiry would constitute a willfully false or fraudulent violation.”

Chapter 1.3 of the Guide clarifies that providing false or fraudulent beneficial ownership information could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document. Chapter 1.3 of the Guide also provides the following example for “willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN”:

For example, an individual who qualifies as a beneficial owner or a company applicant might refuse to provide information, knowing that a company would not be able to provide complete beneficial ownership information to FinCEN without it. Also, an individual might provide false information to a company, knowing that information is meant to be reported to FinCEN.

Safe harbor: A safe harbor is provided for persons who submit incorrect information if the correction is made within 90 days of the original incorrect filing. Any correction that is filed within both the 30-calendar-day timeframe and the 90-day timeframe is deemed to satisfy the safe harbor. The safe harbor is not available to anyone who provided the incorrect information to deliberately evade the CTA reporting requirements or who actually knew that the information was incorrect when the report was filed.

Access to FinCEN Reports

The information in the reports is confidential. The CTA imposes strict confidentiality, security, and access restrictions on that information. Reports submitted to FinCEN pursuant to the CTA and Final Rulemaking are to be accessible only by federal agencies and state, local, and tribal government agencies for national security, law enforcement, and intelligence purposes, and financial institutions and their regulators in certain circumstances. The CTA limits the disclosure of beneficial ownership information by FinCEN to requests “through appropriate protocols” to be promulgated by the Secretary of the Treasury from:

  • federal agencies for national security, intelligence, or law enforcement purposes if the agency is engaged in such activities
  • state, local, or tribal enforcement agencies, but only if authorized by a court of competent jurisdiction in connection with a criminal or civil investigation
  • federal agencies acting on behalf of a foreign prosecutor, judge, or law enforcement agency pursuant to a treaty, convention, or similar agreement
  • a Federal functional regulator or other appropriate regulatory agency, if certain conditions are met
  • financial institutions to facilitate the compliance of financial institutions with customer due diligence requirements under applicable law, but only with the consent of the reporting company and if certain conditions are met

The CTA requires the Secretary of the Treasury to maintain the information contained in CTA-related reports in a secure, nonpublic database and to establish protocols to protect the security and confidentiality of the reported beneficial ownership information, and ensure governmental authorities access the beneficial information only for authorized purposes. In FAQ A.3. (9/18/1023), FinCEN noted that: (a) it is developing the rules that will govern access to and handling of beneficial ownership information; (b) BOIs reported to FinCEN will be stored in a secure, nonpublic 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; and (c) it will work closely with those authorized to access beneficial ownership information to ensure they understand their roles and responsibilities to ensure that the reported information is used only for authorized purposes and handled in a way that protects its security and confidentiality.

FinCEN is to maintain beneficial ownership information required under the CTA relating to each reporting company for not fewer than five years after the date on which the reporting company terminates.

The Department of the Treasury has a larger scope of access to the beneficial ownership information, including access to the information for tax administration purposes.

The improper use or disclosure of the information is subject to: (a) civil penalties of up to $500 per day for each day a violation continues and is not remedied; and (b) either (i) a fine of not more than $250,000, imprisonment for not more than 5 years, or both or (ii) while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, a fine of not more than $500,000, imprisonment for not more than 10 years, or both.

Additional Rulemaking

FinCEN intends to issue additional rulemaking and guidance related to the CTA as well as continue developing its reporting system and related protocols. In particular, the following proposed rules have been published and are waiting to be finalized: (i) Beneficial Ownership Information Access and Safeguards and Use of FinCEN Identifiers for Entities (NPRM) (published 12/16/2022); and (ii) Beneficial Ownership Forms (published in 9/29/2023).

Challenge

In November 2022, the National Small Business Association filed a lawsuit in the U.S. District Court for the Northern District of Alabama alleging that the CTA, among other things, is unconstitutional because it infringes on the protected rights of state sovereignty, privacy, and due process. Currently, a motion to dismiss the case or, alternatively, grant the defendant’s summary judgment, is pending, and a hearing on all pending motions occurred as of November 20, 2023, but a ruling is not yet available.

Practical Tips – Getting Ready for CTA

Determine if the business is a “reporting company”: In consultation with a lawyer of their choosing, companies should review the applicable law to determine whether the business is exempt or a “reporting company.” This requires an analysis of the company’s structure and certain factors. Document the results to support the determination.

Timing for Existing Reporting Companies: If the reporting company is in existence before January 1, 2024, the company will have until January 1, 2025 to comply with the initial informational filing requirement. The CTA requires companies to gather and report information on a timely basis or face substantial monetary penalties and criminal sanctions. Companies should start educating their officers, directors, employees, and beneficial owners of the need for the information and for ongoing monitoring. Companies should develop a process for gathering and storing the information and soliciting information updates from the individuals that have to be included on reports submitted to FinCEN, such as address changes, ownership changes, etc.

Expecting to Form an Entity in 2024 or Later: Consider whether to form the entity in 2023 in order to take advantage of the end of year 2024 deadline. If your entity is formed in 2023, the initial report must be filed by January 1, 2025. Otherwise, the company will have 90 calendar days, if formed in 2024 (30 calendar days if formed on or after January 1, 2025), from its “formation” to make its initial report (“Formation” is the earlier of the date on which the reporting company receives actual notice that its creation (or registration) has become effective, or the date on which the Secretary of State or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created or the foreign reporting company has been registered).

Real-Time Monitoring Systems: Most companies and their officers, directors, and owners are familiar with annual regulatory updates. However, the CTA will require more real-time filings; i.e., filings within 30 calendar days of changes to the company’s previously reported information. Failure to comply may result in a civil penalty of no more than $500 for each day the violation continues and a fine of no more than $10,000 or imprisonment, or both. This will require companies to have monitoring systems, processes to gather the necessary information for timely updates, and some method of policing compliance.

Amending Documents: For policing purposes, some companies are considering amending corporate and limited liability agreements to require disclosures by owners and officers, with some consequences for failing to comply.

Revisit the Company Structure or Consolidate Entities: The CTA will also have some companies reviewing their operating structures and entity selections to avoid having to comply with the CTA. Some considerations include consolidations and trusts versus limited liability companies. In addition, while structuring, consider how “substantial control” elements, such as voting, managerial, or decision-making control, could affect disclosure.

Revisiting A Company’s More-Than-20-Full-Time-Employees Status: Many companies will evaluate whether the “large operating entities” exemption is available, and in particular the more-than-20 full-time-employees requirement. In consultation with their lawyer, companies should review the various other federal, state, and other employment or SBA-related laws before altering or considering changes to full-time employee status numbers so they do not inadvertently trigger other consequences.

Consider and Secure FinCEN Identifiers: To protect the privacy of persons who will be considered beneficial owners or company applicants, these individuals should consider securing a FinCEN identifier when they become available.

Re-evaluate the Benefit of Single Member LLCs: Creating special-purpose entities, such as single-member LLCs, particularly when they may not have employees (or more than 20 employees), may subject the company to reporting obligations under the CTA. Companies should consider whether the benefit of using such special-purpose entities outweighs the reporting obligations, especially when profit distribution is not an issue.

Large Operating Companies Analysis: For companies that fall within the “large operating company” exemption, the reporting company will need to monitor employee count and gross receipts and sales. Each company will need its own system for this type of compliance.

Adding this Form to the Company’s Regulatory Compliance Calendar or Checklist: Reporting companies will need to modify their business’s regulatory compliance calendars and checklists to remind them of the reporting requirements and monitor the need for updating. Examples of triggers are changes to the reporting company like a new business name, changes in board or senior officer composition, changes in employee count, changes in gross receipts or sales based on IRS filings, changes in ownership, changes in governance and operational control, changes in beneficial owners’ information, etc.

Financing and M&A Related Items: All companies should expect that lenders and potential buyers will require assurances of compliance or exemptions with the CTA and perhaps copies of analysis and filings.

Dissolving dormant business entities before December 31, 2023: Companies should consider dissolving dormant business entities before December 31, 2023, because entities that are dissolved prior to year’s end will not be subject to the CTA. To be an inactive entity under the Act, certain criteria must be met.

Beware of scams: As with many new laws, official-looking scams and other fraudulent actors may become active. Be skeptical of any received correspondence and scrutinize it carefully. FinCEN will not reach out to the reporting company. Reporting companies must report to FinCEN and not to third parties. BOI is sensitive information and should be treated as such.

Next Steps

The CTA is effective January 1, 2024, and will require most small businesses and entities to file timely information by January 1, 2025. Now is the time to analyze whether the CTA applies and what steps a business should take to ensure compliance, and businesses should consult with a lawyer of their choosing regarding those important issues. Stay tuned for further developments and updated information.

Alert

FinCEN has posted the following Alert on its site https://www.fincen.gov/boi:

Alert: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney. Further guidance is expected in the future, so this information may become dated after December 1, 2023.  

DISCLAIMER: At this time, Schwabe, Williamson & Wyatt, P.C. is evaluating how best to assist clients that may have questions regarding the CTA and the CTA reporting obligations, but any legal advice regarding reporting obligations or application of the CTA to any client will require a new engagement with the firm. If your company is an existing client of the firm and may be a reporting company or has questions about the application of the CTA, please note that the firm’s current engagement DOES NOT INCLUDE legal advice regarding your company’s reporting obligations or compliance with the CTA.

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