If you own a small business or have a management role in one, then the business might have a whole new reporting obligation to the federal government this year. It’s important to take this obligation seriously because the penalties for willfully failing to file the required reports are steep: $500 per day that the report is late, up to $10,000, and imprisonment for up to two years.
What is This New Report?
Beginning in 2024, most small businesses are required to report information about their “beneficial owners” (more on that definition below) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The goal is to create a national database for use by security and law enforcement agencies to prevent the use of shell companies for criminal activity, such as money laundering.
If you need assistance or guidance filing your BOIR, the attorneys in our business litigation practice can help. Feel free to contact us for more information.
Who Must File?
A small company must file a Beneficial Ownership Information Report (BOIR) if it was formed by filing a document with the Texas Secretary of State or a similar office in another state or foreign jurisdiction. Corporations, LLCs, limited partnerships, and other entities formed in that manner must all file BOIRs. In contrast, sole proprietorships, trusts, and general partnerships do not require the filing of a formal document with the state when they are formed; therefore, they generally are not required to file BOIRs.
Large operating companies – defined as any entity with (a) more than 20 full-time U.S. employees, (b) an operating presence at a physical office within the US, and (c) more than $5 million of U.S.-sourced gross receipts reported on its prior year federal income tax return – are not subject to the new reporting requirements. This is because the government has access to similar information about larger companies from other sources.
What Information Must be Provided?
Beneficial ownership information (BOI) must be reported for the reporting company’s “beneficial
owners” and (for entities registered after 2023) “company applicants.”
For each such person, BOI includes their full legal name, date of birth, street address, and driver’s license or passport number. A PDF image of the driver’s license or passport must be submitted online as part of the BOIR.
Who are “Beneficial Owners”?
Two groups of individuals are considered beneficial owners of a reporting company:
- any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company; and
- any individual who exercises “substantial control” over the reporting company, whether they own any part of the company or not. Individuals with substantial control are those with substantial influence over important decisions about a reporting company’s business, finances, and structure. Senior officers (president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function, such as an LLC manager) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members.
Who are “Company Applicants”?
A company applicant is the individual who was primarily responsible for directing the filing of the company’s formation documents. Company applicants need not be identified for any company that was formed prior to January 1, 2024.
What is the Deadline for Filing My Company’s BOIR?
For existing reporting companies created or registered before 2024, the initial report is due by January 1, 2025.
For reporting companies created or registered in 2024, the initial report is due 90 days after the entity’s creation or registration.
For reporting companies created or registered after 2024, the deadline will come around much faster, just 30 days after the entity’s creation or registration.
If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30 days of the change. A reportable change might be as obvious as a sale of the business to a new owner, but it could also be something that is very easy to overlook, such as a change of address for one of the company’s managers. This makes it important to implement a system to identify reportable changes and file an updated report with FinCEN within 30 days.
How Do I File?
BOI reports must be filed online. FinCEN’s e-filing portal, available at https://boiefiling.fincen.gov/, provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online or (2) by uploading a completed PDF of a BOI report that has been filled out offline. The person who submits the BOI report must provide their name and email address to FinCEN.
FinCEN has a Small Entity Compliance Guide, available at https://www.fincen.gov/boi/small-entity-compliance-guide, to help guide businesses through the reporting requirements.
Many accountants will perform BOIR filings for their small business clients upon request.
Does FinCEN Charge a Fee to File the BOIR?
No.
What Else Do I Need to Know About FinCEN BOIRs?
This post conveys only the broad, general outlines of the new requirements. Like most laws, the federal Corporate Transparency Act includes detailed definitions, exceptions, and nuances that are beyond the scope of a blog post. Please contact Brousseau Naftis Erick & Massingill or visit the government’s website at https://www.fincen.gov/boi for the specifics.
