Prepare and file your beneficial ownership information report (BOIR) properly in time to avoid hefty penalties.
Have you heard about a new US law requirement to report beneficial ownership information (BOI)?
This requirement may well affect you if you have an American company who must file a beneficial ownership information report (BOIR).
So, keep reading as we’re going to talk about the BOI reporting in this post and its subsequent updates.
Beneficial Ownership Reporting
Starting from January 1, 2024, over 32 million businesses must comply with a new reporting requirement under the Corporate Transparency Act (CTA) of 2021 in the United States.
The CTA provides for beneficial ownership information reporting requirements. For compliance, companies must report personal information of their business owners to a new federal database of the US government.
The CTA, in particular, requires disclosure of the beneficial ownership information from numerous corporations, limited liability companies (LLCs), and other entities about people who own, control, manage, or file for an American company.
So, if you hold or operate a US company, Uncle Sam wants to get acquainted with you. That’s not a problem, though. As long as your business is legal, you have nothing to worry about. Sounds good. Right?
The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, sanction evading, terrorism financing, and other illegal activities.
Beneficial Ownership Rule
For these global purposes, on September 29th 2022, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the CTA beneficial ownership information reporting provisions. This rule took effect on January 1, 2024.
Under the CTA and FinCEN beneficial ownership rule, the BOI reports must be filed with FinCEN. Don’t mix it up with the IRS.
The implementation of this new reporting requirement began on January 1, 2024. To comply with this requirement, each reporting company must file a special beneficial ownership form – PDF or online report. It’s like a beneficial ownership declaration.
BOI Reporting Terms
The BOI reporting rule provide for certain terms to file BOIR on beneficial owners of US companies.
When do you need to file your initial beneficial owner report?
This depends on the year of your US company registration.
Reporting Companies
For the new BOI reporting requirement, FinCEN categorizes businesses as existing reporting companies or new reporting companies.
Existing Companies
First, the existing companies are those that were registered before January 1, 2024.
They must submit their initial beneficial ownership reports by January 1, 2025.
New Companies
Second, the new reporting companies are those registered from January 1, 2024. They fall into 2 subcategories: companies created in 2024 and companies formed after 2024.
The first subcategory must file an initial BOI report within 90 days of receiving notice of its business registration. The second subcategory must file a beneficial ownership report within 30 days of receiving notice of business registration.
2024
For the FinCEN BOI reporting purposes, the year of 2024 is a transitional period. It determines the BOIR filing term based on 3 company formation timelines: before, during, and after 2024.
So, depending on your company registration year, you have 1 year, 1 quarter, or 1 month to file your beneficial ownership report.
Specifically, if your US LLC or corporation was registered before January 1, 2024, you initially have 1 year until January 1, 2025. If your American company is incorporated within January 1 to December 31, 2024, you have 90 days. Finally, if your US LLC or corporation is registered from January 1, 2025, you have 30 days.
In view of this, remember to prepare and submit BOIR properly and timely to ensure you comply with this important requirement and avoid huge penalties.
Luckily, the BOI report is a one-off endeavor. Reporting companies are not required to submit BOI reports on an annual or other periodic basis.
If you have any questions on how to report beneficial ownership information, please leave your comment below.
Reporting Companies & Beneficial Owners
To comply with the new requirement to report beneficial ownership information on companies in the US, you should first determine whether the FinCEN BOI reporting rule actually applies to your company and its beneficial owners.
The BOI reporting rule covers various legal forms of business, including limited liability companies (LLCs) and corporations.
The BOIR rule identifies two types of reporting companies:
- Domestic, who are created in the US; and
- Foreign, who are created outside the US but registered or authorized to do business in the US.
The FinCEN rule requires reporting companies to file reports that identify 2 categories of reported individuals:
- Beneficial owners; and
- Company applicants.
First and foremost, it’s important to determine whom you need to disclose for beneficial owner registration. To this end, pay attention to “beneficial owner” definition, with the term “beneficial ownership” explained in the FinCEN small entity compliance guide and frequently asked questions.
Beneficial owner, in particular, includes any individual who, directly or indirectly, either:
- Owns or controls at least 25% of the ownership interests of a reporting company; or
- Exercises substantial control over a reporting company.
The FinCEN beneficial ownership rule covers various beneficial holders, beneficial titles, and beneficial interests. Its definition of a beneficial owner is quite broad.
Don’t mix it up with the definition of ultimate beneficial owner for business banking purposes, though. Rath er, define beneficial owners strictly under the BOI reporting rule.
So, to comply with the BOIR rule, first figure out whether your company and its beneficial owners are actually subject to this rule. This obviously necessitates a legal analysis.
If you have any questions on the BOI reporting, please leave your comment below.
Ownership Interest & Substantial Control
How to determine whether you need to report beneficial ownership information on companies in the US?
Two keys here are ownership interest and substantial control under the FinCEN BOI reporting rule.
First of all, what does “ownership interest” mean? Ownership interest includes, for example, shares of corporation or membership interests or units of LLC as well as their convertibles, options, and futures.
Secondly, what does “substantial control” mean? Substantial control includes a “senior officer” position (for example, director, CEO, CFO, COO, or other officer of corporation or manager of LLC as well as general counsel) or contractual role (for instance, nominee, intermediary, custodian, or agent).
Obviously, the term “beneficial owners” includes ultimate beneficial owners (shortly, UBOs). It goes far and beyond, though. Notably, the definition of “beneficial owners” covers not only owners, but also managers. As such, it would be more appropriate to call them not owners, but rather controllers, stakeholders, beneficiaries, or principals. So, keep in mind that the “beneficial owner” meaning is overly broad.
Under the FinCEN beneficial ownership rule, certain individuals qualify for exceptions from the definition of “beneficial ownership”. They, for example, include:
- Minor child until the age of majority;
- Representative (such as nominee, intermediary, custodian, or agent who merely acts on behalf of the actual beneficial owner);
- Employee below senior officer;
- Inheritor of a future interest until becoming the owner; and
- Creditor regarding loan or debt repayment interest.
The second exception on representatives covers individuals who perform ordinary advisory or other contractual services, such as lawyers and tax professionals. So, there’s no need to report these representatives. At the same time, it’s necessary to report the actual beneficial owners.
Penalties for BOIR Violations
What if you don’t comply with this FinCEN BOI reporting rule? Any penalties? You bet!
Potential violations of the BOI reporting rule include willfully:
- Failing to file a beneficial ownership information report;
- Filing false BOI; or
- Failing to correct or update previously reported BOI.
Beware that failure to submit a complete and accurate BOI report may result in huge civil and criminal penalties. According to the CTA, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day of violation. That person may also be subject to criminal penalties, such as a fine of up to $10K and imprisonment of up to 2 years.
The CTA also provides for enhanced criminal penalties, including a fine of up to $500,000 and imprisonment of up to 10 years, if a person commits a violation 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.
To avoid such drastic penalties, make sure you satisfy the new compliance requirement properly and timely. For example, check whether you have to file a beneficial ownership report in 2024. If so, correctly prepare and file your BOI report in due course from a legal perspective. This is where you may need support from a business attorney licensed to practice law in the US.
Although a BOI report is a one-off endeavor, you must file an updated beneficial owner report within 30 days if any information regarding the reporting company or beneficial owners changes or if you become aware or have reason to know of the inaccuracy of information in the earlier report. There are no penalties for filing an inaccurate BOI report if it’s corrected within 90 calendar days of filing.
Therefore, to avoid legal troubles, file BOIR correctly in the first place.
BOI Reporting Issues
In our further post updates, we’ll discuss:
- Types of reporting companies;
- Types of reported individuals;
- Meaning of beneficial owners;
- Substantial control;
- Ownership interest;
- Exceptions from beneficial ownership;
- Company applicants;
- BOI report contents;
- FinCEN ID for BOI reporting;
- Beneficial ownership information access rule;
- FinCEN customer due diligence rule; and
- Other legal issues.
Beneficial Ownership Report 2024
This will, for example, help you determine whether you need to file a beneficial ownership report 2024.
For further information on FinCEN beneficial ownership reporting and other US business law issues, please visit our website at biryuklaw.com.
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If you need legal help with your US company beneficial ownership information reporting, feel free to contact us at biryuklaw.com.
