As of 2024, U.S. businesses are subject to new federal requirements. One major change is a new requirement for many businesses to collect a beneficial ownership reporting on their beneficial owners and provide the information to the Federal Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
This new requirement comes from the Corporate Transparency Act. This law aims to combat financial crime and corruption by making it harder for bad actors to hide ill-gotten gains through shell companies. If you are affected by the new requirement and don’t meet your new obligations, your business could face criminal and civil penalties.
Depending on when your business was formed, there are different deadlines for your first report:
- Most existing businesses will need to file their first reports by January 1, 2025.
- New businesses formed in 2024 will need to file a report within 90 days of notice that their company’s creation or registration is effective.
- New businesses formed in 2025 will need to file a report within 30 days of notice that their company’s creation or registration is effective.
Which Companies Are Affected By the New Beneficial Ownership Reporting Rules?
The new reporting rules apply to many types of companies that are registered to do business in the U.S., including both domestic and foreign entities.
Many domestic entities, like limited partnerships, liability companies, and certain trusts, are affected by the new requirements. These include companies registered in U.S. territories as well as the 50 states and the District of Columbia. If your company was created by filing a document with a secretary of state or a similar office in the U.S., it must report beneficial ownership information (BOI).
Foreign entities that have registered to do business in the U.S. may also be required to report BOI. If your entity was formed under the law of a foreign country and registered to do business in the U.S. by filing a document with a secretary of state of a similar office in the U.S., it must report BOI.
However, some entities are exempt from the new reporting requirements. These include:
- Securities reporting issuers
- Governmental authorities
- Credit unions
- Depository institution holding companies
- Money services businesses
- Brokers and dealers in securities
- Securities exchanges and clearing agencies
- Other Exchange Act-registered entities
- Investment companies or advisers
- Venture capital fund advisers
- Insurance companies
- State-licensed insurance producers
- Commodity Exchange Act-registered entities
- Accounting firms
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax-exempt entities
- Entities assisting a tax-exempt entity
- Large operating companies
- Subsidiaries of certain exempt entities
- Inactive entities
Sole proprietorships are generally not required to report BOI. However, if your sole proprietorship was created or registered to do business in the U.S. by filing a document with a secretary of state, you must report BOI just like a larger organization.
Please note that filing a document with a government agency to gain an IRS employer identification number (EIN), fictitious business name, or professional or occupational license does not lead to BOI reporting requirements.
Who Counts As a Beneficial Owner?
If someone owns or controls at least 25% of a company’s ownership interests, they are considered a beneficial owner. It doesn’t matter whether the person owns their portion of the company directly or through other entities, such as trusts or other companies.
Ownership interests can include:
- Entity, stock, or voting rights.
- Capital or profit interest.
- Instruments that can be converted into equity, stock, voting rights, capital, or profit interest, regardless of whether anything needs to be paid to exercise the conversion.
- Options or privileges such as puts, calls, or straddles that apply to the above types of interests.
- Any other instrument, contract, arrangement, relationship, understanding, or mechanism used to establish ownership.
Someone can also become a beneficial owner by exercising substantial control over the company. If an individual falls under any of the below categories, they are considered a beneficial owner even if they don’t own 25% of the company.
- Senior officers, such as company presidents, CEOs, CFOs, COOs, general counsel, or any officer who performs a similar function.
- Individuals with the authority to appoint or remove certain officers or a majority of directors of the company. Members of a company’s board of directors are sometimes but not always considered beneficial owners.
- Individuals who make important decisions for the company, such as decisions about its finances, business, or structure. However, accountants and lawyers generally don’t qualify if they only provide general accounting or legal services.
- Other individuals who have any form of substantial control, as explained in Chapter 2.1 of FinCEN’s Small Entity Compliance Guide.
What Information Are You Required to Report?
Businesses that are subject to the new requirements need to report the following information for each beneficial owner:
- Full legal name.
- Date of birth.
- Residential address.
- An image of a driver’s license, passport, or another government-issued ID.
- The unique identification number and issuing jurisdiction of the government-issued ID in the image.
The report should also include the reporting business’s legal name, business address, and federal tax ID number.
How Do You File for Beneficial Ownership Reporting?
Businesses can file BOI reports for free through FinCEN’s BOI E-Filing website. You can authorize any employee, owner, or third-party service provider to file a BOI report on your business’s behalf. The authorized filer will need to provide their own basic contact information, including their name and an email address or phone number.
You are not required to use an attorney or CPA to submit your BOI report. Many companies will be able to submit this information on their own with FenCEN’s guidance. However, a business lawyer can help if your business needs help meeting your reporting obligations.
At the Anderson Hunter Law Firm, we have been serving businesses in the Snohomish County area for over 100 years. We provide general legal counsel in a broad range of areas, including entity formation, business acquisitions, reorganizations, anti-trust, and pension and profit sharing. We can advise businesses on their reporting requirements under the law.
Our law firm has built a reputation for responsive, personal service. Contact us today to get in touch with a business lawyer in Snohomish County.