Most registered business entities — like Limited Liability Companies (LLCs) and Corporations — must file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN).

In September 2022, FinCEN, a bureau of the U.S. Department of Treasury, announced its final rule requiring certain entities to report their beneficial ownership information. The BOI report is designed to provide transparency about who owns and benefits from an LLC or Corporation. It requests identifying information about the entity’s beneficial owners (the individuals who directly own or control a company).

The purpose of the reporting requirement is to make it more difficult for unscrupulous individuals to get away with illegal or improper gains through shell companies or other questionable ownership arrangements. It will provide the U.S. government with information that can potentially help it enhance national security and protect financial systems from criminals who traffic drugs, commit fraud, launder money, and engage in other illicit activities.

A company must submit a BOI report if it meets the FinCEN’s beneficial owner reporting rule’s definition of a “reporting company” and does not qualify for an exemption.

A “reporting company” is any company formed in the US, or any foreign company that registers to do business in the US, by filing a document with a secretary of state or similar office, unless it comes within the scope of an exemption. There are 23 categories of exemptions from the BOI rule. Companies that qualify under any of these exemptions will not be “reporting companies” and will not need to file BOI reports (unless they later become non-exempt). Some of the exemptions likely to have broad relevance are noted below, and additional detail on each exemption, including the specific criteria, is provided by FinCEN in Section 1.2 of the Small Entity Compliance Guide. In spite of the breadth of the exemptions, however, many newly and recently formed privately held companies are not likely to qualify for an exemption, and thus will be subject to the BOI rule. Additionally, holding companies or other similar vehicles may in some cases not be within any of the categories of exemptions, though a detailed analysis may be required based on the specific facts and circumstances of a particular organization’s structure.

Key exemptions likely to exclude many companies from the BOI rule’s reporting requirements include exemptions for the following types of entities:

Large operating companies, which the BOI rule defines to include any company that employs more than 20 full-time employees in the US, has more than $5,000,000 in gross receipts or sales in the US, and has an operating presence at a physical office within the US.

Public companies, based on the BOI rule definition of a “securities reporting issuer.”

Certain types of regulated entities, such as insurance companies, banks and credit unions, brokers or dealers in securities, and money services businesses (MSBs).

Entities involved in private equity and venture capital – specifically, investment companies, investment advisers, pooled investment vehicles and venture capital fund advisers – subject to certain criteria.

Subsidiaries of certain exempt entities, including larger operating companies, public companies, regulated entities such as banks (but not MSBs), and the exempt private equity and venture capital entities, are also exempt from BOI reporting, provided in each case that the subsidiary’s ownership interests are controlled, or wholly owned, directly or indirectly, by the exempt entity.

Listed below are the 23 current exceptions for businesses that do not need to file a BOI report with FinCEN:

Securities reporting issuer

Government authority

Bank

Credit Union

Depository institution holding company

Money services business

Broker or dealer in securities

Securities exchange or clearing agency

Other Exchange Act registered entity

Investment company or investment adviser

Venture capital fund adviser

Insurance company

State-licensed insurance provider

Commodity Exchange Act registered entity

Accounting firm

Public utility

Financial market utility

Pooled investment vehicle

Tax-exempt entity

Entity assisting a tax-exempt entity

Large operating company

Subsidiary of certain exempt entities

Inactive entity

A reporting company must submit a BOI report to FinCEN that includes three types of information:

Company information, such as full legal name (and any trade names), address, jurisdiction of formation, and taxpayer identification number (or equivalent issued by a foreign jurisdiction).

Beneficial owner information, including the full legal name, date of birth, address, and the unique identifying number and image of a US passport, state driver’s license, or other eligible identification document for each individual identified as a beneficial owner.

Company applicant information, for companies created or registered on or after January 1, 2024, which is the same information required to be provided for beneficial owners.

Companies must collect the required information and submit BOI reports through FinCEN’s Beneficial Ownership Secure System (BOSS). The final form of the BOI report has not yet been made available as of the date of this alert, and FinCEN is not yet accepting BOI reports.

A reporting company must file an updated BOI report to communicate changes to company or beneficial owner information (including the beneficial owners’ identities and previously submitted information for them) no later than 30 days after the date on which the change occurred. BOI report data also must be updated within 30 days after the date the company becomes aware of an inaccuracy in a previously filed BOI report or had reason to know of such inaccuracy. Company applicant information does not need to be updated on a reporting company’s BOI report in the event the information changes (e.g., a change in address of a company applicant), but a reporting company does need to file an updated BOI report if there are inaccuracies in previously reported company applicant information.

Companies are not otherwise required to submit BOI reports on an annual or other periodic basis as a matter of course.

The BOI report collects the following information about the reporting company and its beneficial owners and company applicants.

Reporting company information:

Entity’s full legal name

Any DBAs or trade names

Principal U.S. business address

Formation jurisdiction (state, tribal, or foreign)

IRS taxpayer ID number (TIN, Social Security Number, EIN)

Beneficial owners and company applicants information:

Full legal name

Date of birth

Complete residential street address (depending on the circumstances, company applicants should use the business address instead).

Personal identification number and issuing jurisdiction from — and image of — a non-expired U.S. passport; state driver’s license; other ID document issued by a state, local government, or tribe; or a foreign passport if the individual doesn’t have any of the other forms of identification.

If a beneficial owner or company applicant has obtained a FinCEN identifier, the reporting company can include that FinCEN identifier in its report instead of the other information about the entity or individual. A FinCEN identifier is a unique ID number issued to an individual or reporting company upon request. Individuals may request one through an electronic application. A reporting company can request one by checking a box on its BOI report. No one is required to get a FinCEN identifier.

Under the BOI rule, a “beneficial owner” is any individual who, directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. The BOI rule describes four categories of “substantial control”:

The individual is a senior officer (e.g., CEO, chief financial officer, general counsel).

The individual has authority to unilaterally appoint or remove any such senior officer or a majority of the board of directors of the reporting company.

The individual directs, determines or has substantial influence over important decisions made by the reporting company.

The individual has any other form of substantial control over the reporting company.

Ownership interests for purposes of the BOI rule can include equity, stock or voting rights; a capital or profit interest; convertible instruments; options or other nonbinding privileges to buy or sell any of the aforementioned types of interests; or any other instrument, contract or other mechanism used to establish ownership. To determine whether an individual owns or controls, directly or indirectly, at least 25% of the ownership interests of the company, a reporting company may need to first identify the types of ownership interests, then calculate whether any single individual’s interests exceed 25%.

FinCEN’s Small Entity Compliance Guide provides additional information, including checklists, for identifying individuals who are beneficial owners based on the substantial control and ownership interests prongs, but companies with more complex ownership and/or governance structures may need to conduct a more detailed and nuanced analysis to identify beneficial owners.

Reporting companies created after January 1, 2024, are required to identify and report company applicants. Each such reporting company will have at least one and a maximum of two company applicants. Under the BOI rule, a “company applicant” is defined as: (1) the individual who directly files the document that creates a domestic reporting company or first registers a foreign reporting company to do business in the US; and, if applicable, (2) the individual primarily responsible for directing or controlling the filing of the creation or registration document.

Reporting companies created or registered on or before December 31, 2023, do not have to report company applicants when they start reporting by January 1, 2025.

A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual upon request. An individual may directly apply for a FinCEN identifier by providing the same information that a reporting company would submit on behalf of the individual as a company applicant or beneficial owner. (In certain instances, a reporting company may wish to obtain a FinCEN identifier and can request the issuance when filing its BOI report.)

A reporting company may report an individual’s FinCEN identifier in place of the required four pieces of information about the individual in BOI reports. An individual who is either a beneficial owner or a company applicant of a reporting company will therefore not need to provide personal information directly to the reporting company if the individual has obtained a FinCEN identifier and provides it to the reporting company instead. An individual must keep the information provided to FinCEN to obtain a FinCEN identifier (e.g., address information) updated.

Similar to the BOI report, FinCEN has not yet made public the final form of the FinCEN identifier application, and FinCEN is not yet accepting FinCEN identifier requests.

Any person who willfully provides, or attempts to provide, false or fraudulent BOI data to FinCEN – or willfully fails to report complete or updated BOI data to FinCEN – may be subject to civil or criminal penalties of up to $10,000 and up to two years in prison. A person fails to report complete or updated BOI data to FinCEN if, with respect to a reporting company, the person “causes the failure,” which could include an individual’s refusal to provide or submit required information for a reporting company’s BOI report.

FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.

A reporting company created or registered to do business before January 1, 2024, will have a full calendar year (until January 1, 2025) to file its initial BOI report.

A reporting company created or registered on or after January 1, 2024, and prior to January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report.

Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.

After the initial report is filed, if an update or correction is needed the business will have 30 calendar days after a change requiring an update or the discovery of an incorrect report was discovered to update or correct their report.

Of course! Our team of BOI experts will be glad to answer any questions you may have and work with you on all of your compliance needs. Please contact us at the mailbox or phone numbers below and we will be happy to assist you.