New Beneficial Ownership Reporting Requirements to Take Effect January 1, 2024
Background and Overview
On January 1, 2024, beneficial ownership information reporting requirements will begin to take effect for legal entities created or registered to do business in the United States. Creation of this corporate registry caps a years-long effort by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to implement the Corporate Transparency Act of 2020 (CTA) and brings the United States into greater alignment with corporate disclosure regimes that have already been implemented in 30 countries, including the UK and EU.
By FinCEN’s estimate, the CTA reporting requirements will affect “tens of millions” of legal entities when fully implemented and, accordingly, businesses of all sizes are well-advised to consider their obligations. In the reference guide that follows, we outline and explain key features of the new reporting requirements and highlight compliance challenges companies may face. We will provide additional updates as warranted in the weeks and months ahead.
Quick Reference Guide
Who must file beneficial ownership information reports (“BOI Reports”)?
- “Reporting Companies,” defined to mean virtually any legal entity created or registered to do business in the United States, including corporations, LLCs, various types of partnerships and certain trusts. The statutory and regulatory definitions are intentionally broad and we expect the disclosure obligations to apply to many of our clients, including private funds.
What are the exemptions from these requirements?
- Under the CTA and FinCEN’s implementing rules, 23 exemptions exist from the definition of “Reporting Company.” An entity that qualifies for any of these exemptions need not file a BOI Report with FinCEN.
- Examples of exempt entities include:
- Banks, bank holding companies, broker-dealers, exchanges, clearinghouses, and CFTC-registered entities
- Issuers of securities registered under Exchange Act Section 12 or required to file information under Section 15(d)
- Investment companies and registered investment advisers
- Certain registered venture capital fund advisers
- Insurance companies
- Accounting firms
- Certain pooled investment vehicles
- Tax-exempt entities
- “Large operating companies” with:
- a “physical office” in the U.S.;
- >20 full-time employees; and
- annual gross revenues > $5MM
- Subsidiaries “controlled or wholly owned” by certain types of exempt entities
- “Inactive” entities
What information must a BOI Report include?
- Full legal name of entity and any “doing business as” (DBA) name;
- Street address for the entity’s principal place of business (domestic entities) or the primary U.S. location (foreign entities);
- State/territory of incorporation/formation or, for foreign entities, the U.S. jurisdiction where it first registered to do business;
- Internal Revenue Service (IRS) taxpayer identification number;
- For each “Beneficial Owner” and “Company Applicant”:
- Full legal name
- Date of birth
- Street address (which, for Beneficial Owners, must be a residential address)
- A “unique identifying number” derived from an image of a valid passport/state ID/driver’s license
Who is a Beneficial Owner?
- An individual who, directly or indirectly:
- Owns or controls at least 25% of the ownership interests of such Reporting Company, regardless of the form such interests take (e.g., equity shares, a capital or profit interest, convertible instruments, options, etc.); or
- Exercises substantial control over the entity, including:
- “Senior officers” (e.g., President, CEO, COO, CFO, General Counsel or individuals performing similar functions);
- Individuals with the authority to appoint or remove senior officers or a majority of the directors (or similar body);
- “Decision makers” (individuals who, for any reason, have the ability to direct, determine, or exercise substantial influence over important decisions of the entity); and
- Any individual who has any other form of material control over the Reporting Company (e.g., general partners/managers or a VC investor capable of influencing important decisions)
Who is a Company Applicant*?
- An individual who:
- “Directly files” the entity’s creation or registration document (must be identified by all Reporting Company that is required to report its Company Applicants); and
- (if more than one individual is involved) Is “primarily responsible for directing or controlling” such filing.
*Note: Required only for reporting companies formed after January 1, 2024
When are BOI Reports Due?
- Initial Reports
- Although the reporting requirements take effect on January 1, 2024, the deadline for filing an initial report varies, depending on when the entity was formed:
Formation Date | Initial BOI Report Due |
Before Jan. 1, 2024 | Jan. 1, 2025 |
Jan. 1, 2024 – Dec. 31, 2024 | 90 days after registration |
On or after Jan. 1, 2025 | 30 days after registration |
- Updates
- After filing an initial BOI report, a company must submit updated reports within 30 days of any change in beneficial ownership.
How will BOI Reports be filed ?
- Through a secure electronic filing system available via FinCEN’s website. The system is currently being developed. The form of BOI Reports is not yet available but will be posted on FinCEN’s beneficial ownership information webpage once available.
What are the penalties for failing to file?
- The CTA prohibits:
- Willful provision of false or fraudulent beneficial ownership information or identifying documents or failure to report or update required information; and
- Knowing unauthorized use or disclosure of beneficial ownership information obtained from FinCEN.
- Civil and criminal penalties attach to both reporting and use/disclosure violations.
- However, under a safe harbor provision, there will generally not be liability if inaccurate information is corrected within 90 days of submission.
What should companies be thinking about now?
- Managers of legal entities organized or registered to do business in the United States should consider:
- Evaluating every entity within the organizational structure to determine which may be a “Reporting Company” and whether an exemption may apply;
- Identifying each “Beneficial Owner” for entities that are “Reporting Companies” and, for those organized after January 1, 2024, the “Company Applicant(s);”
- Collecting required information for the BOI Report(s) and preparing to file in accordance with the applicable deadline;
- Maintaining a tracking system for Beneficial Owners so that timely update filings can be made going forward.
- Lawyers and other legal professionals should consider not only reporting obligations that apply to their clients but also their own potential obligations as “Company Applicants.”
- Financial institutions subject to FinCEN’s Customer Due Diligence (CDD) Rule should keep abreast of developments and look out for FinCEN’s expected rulemaking to harmonize the CTA and CDD Rule, which overlap in meaningful ways. Under the statute, FinCEN must propose such a rule within one year of implementing the beneficial ownership reporting requirements (i.e., before January 1, 2025).