Beneficial Ownership Reporting

Starting in 2024, corporations, limited liability companies (LLCs), limited partnerships, and other entities that file formation papers with a state’s Secretary of State’s office (or similar government agency) will be required to comply with the Corporate Transparency Act (“CTA”) and must file beneficial ownership information (“BOI”) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. Unfortunately, this will impose burdensome reporting requirements on most businesses, and the willful failure to report information and timely update any changed information can result in significant fines:

•  $500 per day until the violation is remedied
• or fines up to $10,000 and imprisonment of up to 2 years for failure to timely file initial or updated reports

These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report.

Beneficial owners are broadly defined and involve owners who directly or indirectly own more than 25% of the entity’s ownership interests or exercise substantial control over the reporting company (even if they do not actually have an ownership interest). While this may seem to only impact a few significant owners, it can encompass many senior officers of the business as well as those individuals who are involved in any significant business decisions (e.g., board members). Given the severity of the fines, it may be safer to err on the side of overinclusion rather than under inclusion.

BOI & Reporting

This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. Unfortunately, this will impose burdensome reporting requirements on most businesses, and the willful failure to report information and timely update any changed information can result in significant fines:

• $500 per day until the violation is remedied
• or fines up to $10,000 and imprisonment of up to 2 years for failure to timely file initial or updated reports

Impacted Parties

These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report.

Beneficial owners are broadly defined and involve owners who directly or indirectly own more than 25% of the entity’s ownership interests or exercise substantial control over the reporting company (even if they do not actually have an ownership interest).

While this may seem to only impact a few significant owners, it can encompass many senior officers of the business as well as those individuals who are involved in any significant business decisions (e.g., board members). Given the severity of the fines, it may be safer to err on the side of overinclusion rather than under inclusion.

Reporting Deadlines

• For entities formed prior to January 1, 2024, you will have until January 1, 2025 to report BOI
• For entities formed in 2024, you must report BOI within 30 calendar days after receiving actual/public notice that your company’s creation is effective (although there is a proposal to extend this to 90 days for entities formed in 2024 only)

Needed Information & Changes

The types of information that must be provided (and kept current) for these beneficial owners include:

• The owner’s legal name
• Residential address
• Date of birth
•  Unique identifier number from a nonexpired passport, driver’s license, or state identification card
• An image of any of these forms of documentation

Should any of the reported information change or a beneficial ownership interest be sold or transferred, the entity must report this information within 30 days of the change or face the potential of having the penalties described above imposed. Changes include reporting a beneficial owner’s change of address or name, a new passport number when a passport is replaced or renewed, or providing a copy of a renewed driver’s license.

Engagement Limitations & Next Steps

Assisting you with your compliance with the CTA, including BOI reporting, is not within the scope of our engagement. You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership information. We shall have no liability resulting from your failure to comply with CTA.

Information regarding the BOI reporting requirements can be found at https://www.fincen.gov/boi. An overview of penalties, deadlines, and instructions can be found HERE. Consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection of relevant ownership information. 

Questions

Please email Amar Patel with any questions at amar@fanwmg.com.