While you’ve been busy running your business, a new Beneficial Ownership Information Reporting (BOI) requirement was introduced to take effect on January 1. However, in a federal court case on December 3, a Nationwide injunction was issued. This injunction may be lifted at any time and business owners may still file under the injunction. It is unclear if the injunction is lifted when the revised due date will be. The following is a review of what the requirement entails in the event the injunction is lifted at a later date.
This requirement involves filing with the Financial Crimes Enforcement Network (FinCEN), a government agency under the U.S. Treasury Department. FinCEN is tasked with safeguarding our financial system, part of which involves finding and stopping money laundering activities. The Corporate Transparency Act (CTA), passed by Congress in 2021, mandated FinCEN to oversee these informational reporting requirements to help prevent illegal money transfers.
We suggested earlier this year that you wait to see if changes, clarifications, or postponements would be made to this filing. While some things have been clarified, it appears this registration will not be postponed.
Here are a few more details regarding registration:
Who Must Register?
If your business is required to file documents with the secretary of state to become active, such as LLCs, Partnerships, S-Corporations, C-Corporations, and some trusts, you might need to file. There are exemptions to who must register, so it’s recommended that you carefully research before deciding. Typically, exemptions include entities that are already highly regulated and larger entities that satisfy ALL of the following criteria:
Employing more than 20 full-time employees in the US,
Having a physical office in the U.S.,
Filing a federal income tax return last year showing more than $5 million in gross receipts or sales.
Defining Beneficial Owners and Company Applicants
Beneficial owners are identified as individuals who own 25% or more of the equity interests of the business or who exercise substantial control over the business. Determining who has substantial control can be more complex, especially as this is a new requirement with no historical rulings for guidance. In the FAQs by FinCEN in section D, there is further clarification for this. We encourage you to look at FAQ D2 especially. In some states, even your spouse who has nothing to do with the business might be considered having substantial control.
Company applicants include the individuals who filed the incorporation documents with the secretary of state or those primarily responsible for controlling the filing process, such as a legal or accounting professional assisting with the filing.
Required Information
The registration itself is straightforward, requiring basic information about the beneficial owners, like their full legal name, date of birth, current address, and identification number from a document such as a U.S. passport or driver’s license. Identifying the correct individuals for whom you must provide information is the challenging part.
If you own more than one business required to register, consider getting a FinCEN id. This will let you enter your personal information once and then use your FinCEN id on each business so you don’t need to add your personal information each time.
Final Thoughts
In the event these rules take effect in the future, any changes (e.g. new address, new owner, new driver's license number) regarding beneficial owners must be reported within 30 days to avoid penalties. This underscores the importance of keeping your registration information up to date. For more detailed guidance, check out the FinCEN comprehensive compliance guide.
Be cautious of services that offer to manage the BOI registration process for a substantial fee.
Your small business lawyer or accountant can provide reliable advice. Some of them can also do the filing for you, and we suggest that if you choose to have someone help you that you select someone you know. We're also here to discuss these changes, though we won't be handling filings directly!
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