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The Corporate Transparency Act And Beneficial Ownership Information Reporting
The Corporate Transparency Act (Act) and its beneficial ownership information (BOI) reporting requirements have become major topics of discussion in the media and between lawyers and accountants and their clients in the past year. We are attempting to provide current and relevant information on the Act and its requirements.
Background
The Act became federal law in 2021. It grew out of the sense of Congress that “malign actors seek to conceal their ownership” of legal entities in the United States “to facilitate illicit activity,” including money laundering, terrorist financing, human, drug and arms trafficking, and tax fraud. The Act seeks to address this concern by requiring certain legal entities to self-report BOI to the Financial Crimes Enforcement Network, part of the U.S. Department of the Treasury (FinCEN), for use in facilitating national security, intelligence and law enforcement activities and confirming BOI provided to certain financial institutions.
The Act leaves the mechanics of reporting BOI to be prescribed by regulations promulgated by the Secretary of the Treasury. Following substantial delay, the regulations were promulgated in final form on September 30, 2023, and became effective January 1, 2024.
What Companies Are Required To Submit BOI Reports?
The Act starts from a presumption that an entity with a United States domicile or place of business formed by way of a governmental filing is covered, then provides a number of exemptions from the requirement. It sorts entities required to submit BOI reports (Reporting Companies) into two categories:
• Domestic Reporting Companies – corporations, LLCs and other entities created by the filing of a document with a secretary of state or similar office in the United States, unless an exemption applies. (1)
• Foreign Reporting Companies – entities (including corporations and LLCs) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office in the United States, unless an exemption applies.
What Entities Are Exempt From Reporting Company Status?
The Act provides exemptions from its reporting requirements for 23 categories of entities, and grants FinCEN authority to designate additional exemptions by rule-making (FinCEN has not done so at this point). Most of the exempt categories apply to banks, credit unions, other types of finance companies, securities brokers and dealers, investment companies, investment advisers, venture capital fund advisers, insurance companies, state-licensed insurance producers, publicly traded companies, Commodity Exchange Act registered entities, and other entities already required to provide substantial identifying information to the government, including public accounting firms registered under the Sarbanes-Oxley Act, as well as governmental authorities. Also exempted are a large number of tax-exempt entities (including those exempt under Section 501(c) of the Internal Revenue Code) and certain entities providing financial assistance for them, and certain “inactive” entities.
For entities with active business operations not fitting into one of the foregoing exemptions, the primary focus will be on the “large operating company” exemption. To qualify for this exemption, the entity must:
• Employ more than 20 people on a full-time basis in the United States. “Full-time” means at least 30 hours per week, and the testing is by employee (i.e., part-time employees cannot be counted together as FTEs) and solely for the entity itself (i.e., employees of subsidiaries are not counted);
• Have filed a federal income tax return in the United States demonstrating more than $5,000,000 in gross receipts or sales (unlike for employees, this does take into account gross receipts or sales of subsidiaries). The regulations state this determination should be made after “excluding gross receipts or sales from sources outside the United States”; and
• Have an operating presence at a physical office in the United States.
Finally, entities owned or controlled, directly or indirectly, by one or more of the entities falling into many of the other exemption categories (including large operating companies) are also exempt.
Note that entities that are initially exempt may become Reporting Companies as circumstances change, in which case a BOI report will need to be filed within 30 days, and entities that are initially Reporting Companies may become exempt. By way of examples of the first, a Large Operating Company may dip below 20 full-time employees or $5,000,000 in United States sales, or a subsidiary of a Large Operating Company too small to be exempt itself may get transferred to new ownership; in either of these cases, they will become Reporting Companies. On the other hand, an entity newly formed to acquire the business and assets of a Large Reporting Company will not become exempt until it has filed a federal tax return with sufficient sales and otherwise satisfied Large Operating Company requirements, unless it has another basis for exemption (e.g., as a subsidiary of an existing Large Operating Company).
When are Filings Required?
A Reporting Company will need to file an initial BOI report:
• Prior to January 1, 2025, if the Reporting Company was in existence prior to January 1, 2024 (or registered to do business in the United States prior to January 1, 2024, in the case of a Foreign Reporting Company).
• Within 30 days (extended to 90 days during 2024 only) following creation (or registration to do business in the United States if a Foreign Reporting Company) if the Reporting Company came into existence (or first registered to do business in the United States) on or following January 1, 2024.
• Within 30 days following ceasing to be exempt, if previously an exempt entity.
As discussed below, updated reports will be required to be filed by a Reporting Company within 30 days following changes to relevant information about the Reporting Company itself or any of its Beneficial Owners.
Filing Fees
There is no fee for filing a BOI report.
What Information Is Required To Be Reported?
Each Reporting Company will need to report information about itself and its Beneficial Owners (discussed more below). In addition, Reporting Companies formed (or first registered to do business in the United States) on or following January 1, 2024, will need to report information on one or two Company Applicants (discussed more below).
Reporting Company Information:
• Full legal name
• All trade names or “doing business as” (DBA) names
• Complete current United States address (either the address of the principal place of business in the United States, or, if the Reporting Company’s principal place of business is not in the United States, the primary location in the United States where the Reporting Company conducts business)
• State, tribal, or foreign jurisdiction of formation
• For a Foreign Reporting Company only, state or tribal jurisdiction of first registration
• Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN); a Foreign Reporting Company which has not been issued a TIN should report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction)
Beneficial Owner Information:
• Full legal name
• Date of birth
• Residential street address
• Unique identifying number from (and the issuer of) a non-expired (a) United States driver’s license, (b) United States passport, or (c) identification document issued by a state (including a United States territory or possession), local government, or Indian tribe; or, if none of those documents exist, a non-expired foreign passport
• An image of the document from which the unique identifying number is located.
Beneficial Owners are discussed more below. Note that only individuals can be identified as Beneficial Owners, and every Reporting Company must have at least one. Also note that the details as to why an individual is a Beneficial Owner need not be reported.
Company Applicant Information:
Company Applicants are individuals involved in forming (or registering) a Reporting Company. Each Reporting Company created (or first registered to do business in the United States) on or following January 1, 2024, is required to identify at least one Company Applicant, and at most two, in its report. In the case of a Domestic Reporting Company, one Company Applicant is the individual who directly files the document that forms the entity. In the case of a Foreign Reporting Company, one Company Applicant is the individual who directly files the document that first registers the entity to do business in the United States. A second Company Applicant must be reported if more than one individual is involved in the filing, and would be the individual who directs or controls the filing of the document by the direct filer. The information required to be reported for each Company Applicant is the same as identified above for a Beneficial Owner, except that if the Company Applicant forms or registers Reporting Companies in the course of the Company Applicant’s business (e.g., an attorney or paralegal), the street address of the Company Applicant’s business may be substituted for a residential address. Note that Company Applicant information is not required for Domestic Reporting Companies formed prior to January 1, 2024, or Foreign Reporting Companies that first registered to do business in the United States prior to January 1, 2024, and need not be updated for changes (although corrections are required if the initially reported information was incorrect).
FinCEN Identifiers:
Individuals who expect to be identified in reports for multiple Reporting Companies, whether as Beneficial Owners, Company Applicants, or both, may obtain a FinCEN Identifier by submitting to FinCEN the information required above. In such a case, the Beneficial Owner will need to directly update the information submitted as necessary. In the case of such an individual, the Reporting Company will identify the individual as required by use of the FinCEN Identifier in lieu of providing the information identified above.
Reporting Companies will also be provided with FinCEN Identifiers.
Who Is A Beneficial Owner?
The whole point of the Act is to obtain information about each Beneficial Owner of each Reporting Company. Each Reporting Company must have at least one Beneficial Owner, and there is no prescribed cap on the maximum number of Beneficial Owners (unlike Company Applicants). But who exactly is a Beneficial Owner? As contemplated by the Act, the term has a much broader meeting than the word “owner” implies. First, a Beneficial Owner must be an individual (as opposed to an entity or a trust, although an individual acting on behalf of an entity or trust holding an ownership interest in a Reporting Company may be a Beneficial Owner). Second, the individual must, directly or indirectly, either (a) own or control at least 25 percent of the “ownership interests” of the Reporting Company, or (b) exercise “substantial control” over the Reporting Company.
25% Direct or Indirect Ownership or Control of Ownership Interests:
• “Ownership interests” are equity, stock, or similar instruments, preorganization certificates or subscriptions, transferable shares, voting trust certificates, and similar interests, whether or not having voting rights; capital or profits interests in an entity; instruments convertible into any of the foregoing; puts, calls, straddles and other options or privileges of buying or selling any of the foregoing; and any “any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.”
• “Direct or indirect ownership or control” may exist by way of “any contract, arrangement, understanding, or otherwise.” Examples include joint ownership, use of a nominee, agent or custodian to hold, or ownership through an intermediary entity. In the case of a trust or similar arrangement holding an ownership interest, ownership or control will be deemed to exist on the part of any trustee with authority to dispose of trust assets, a beneficiary entitled to all income and principle from the trust or with right to withdraw or demand distribution of substantially all of the assets from the trust, or settlor who can revoke the trust or otherwise withdraw the trust assets.
• A number of additional rules exist for determining satisfaction of the 25% requirement, depending on different factual scenarios. Where application of the rules to the facts at hand does not permit a clear calculation, e.g., due to having multiple types of “ownership interests,” the Reporting Company is left to perform the calculation separately for each “class or type of ownership interest,” and to report the BOI for individuals directly or indirectly owning or controlling 25% or more of each separate class or type.
“Substantial Control”:
An individual is deemed to have “Substantial Control” over the Reporting Company if the individual:
• Is a “senior officer” of the Reporting Company (specifically having the title, or exercising the authority, of the president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer performing a function similar to the any of the foregoing);
• Has authority (whether or not exercised) over the appointment or removal of a “senior officer” or a majority of the board of directors (or equivalent body) of the Reporting Company;
• Directs, determines, or has substantial influence over “important decisions” of the Reporting Company, including as to the nature, scope and attributes of the business, reorganization, dissolution or merger, major expenditures, issuing securities, incurring significant debt, approval of operating budgets, selection or termination of business lines or ventures, geographic focus, compensation schemes and incentive programs for “senior officers,” entering into, fulfilling or not fulfilling significant contracts, or amendments of governing documents; or
• Has “any other form of substantial control over the [R]eporting [C]ompany.”
Direct or Indirect Exercise of “Substantial Control”:
An individual may directly or indirectly (including as a trustee of a trust or similar arrangement) exercise “substantial control” over a Reporting Company through board representation, ownership or control of a majority of the voting power of the Reporting Company, rights associated with financing arrangements, control over intermediary entities, arrangements or financial or business relationships with other individuals or entities acting as nominees, or “any other contract, arrangement, understanding, relationship, or otherwise.”
Exceptions to being a “Beneficial Owner”:
There are some exceptions to reporting obligations in the case of individuals who would otherwise qualify as “Beneficial Owners”:
• A minor child, as defined under applicable state law, need not be reported on. However, a parent or legal guardian will need to be reported on in lieu of the child. Further, when the child ceases to be a minor under applicable law, the child will need to be reported on (assuming otherwise then meeting the definition of “Beneficial Owner”).
• An individual acting as a nominee, intermediary custodian, or agent of another individual need not be reported on (although the individual for whom the first individual is acting will need to be reported on).
• An employee of the Reporting Company acting solely as an employee and with no other economic benefit from the Reporting Company need not be reported on, so long as not a “senior officer” of the Reporting Company.
• An individual whose only interest in the Reporting Company is a future interest through right of inheritance need not be reported on; such an individual will need to be reported on if and when the inheritance is actually received, assuming it otherwise results in the individual being a Beneficial Owner.
• A creditor of the Reporting Company need not be reported on if the creditor’s only interest is through rights or interests for the repayment of debt, such as loan covenants intended to secure, or enhance the likelihood of, the repayment of indebtedness.
• Finally, an individual holding “ownership interests” in a Reporting Company indirectly through an exempt entity need not be reported on. Instead the Reporting Company would report merely the identity of the intervening exempt entity. Note also that an entity all of the ownership interests of which are held by one or more of many different types of exempt entities (including one or more Large Operating Companies) would itself be an exempt entity.
Updating And Correcting BOI Reports
A Reporting Company must update its BOI report within 30 days following changes to the Reporting Company or Beneficial Owner information required to be in its previously filed report. This includes significant changes (e.g., changes in identity of Beneficial Owners) and more mundane (address changes). It does not include all aspects of the information previously provided; for example, if driver license information was previously provided for a Beneficial Owner, the issuance of a new license on expiration would ordinarily not be required to be disclosed; however, if the Beneficial Owner relocated and obtained a license from a different state, the identification number and issuing state would need to be updated, and an image of the new license provided. There is no need to update information pertaining to a Company Applicant.
Corrected reports must be filed to correct inaccurate information in previously filed reports within 30 calendar days of when the Reporting Company becomes aware or has reason to know of the inaccuracy of information in the earlier report. A corrected report filed within 90 calendar days of the initial report filing to correct an inaccuracy in the initial report provides a safe harbor from penalty for filing an inaccurate report.
Failure to File a Report
The willful failure to timely report complete (or updated) required information to FinCEN, or the willful provision of or attempt to provide false or fraudulent required ownership information may result in civil and/or criminal penalties. Potential penalties include a civil penalty of up to $500 for each day that the violation continues, a maximum fine of up to $10,000, imprisonment for up to two years, and both a fine and imprisonment. “Senior officers” of a Reporting Company may be held personally accountable for failures of the Reporting Company. In addition, a person (including a Beneficial Owner) may be subject to civil and/or criminal penalties for willfully causing a Reporting Company not to file a required BOI report or update, or to report incomplete or false BOI to FinCEN.
With Whom May FinCEN Share Reported BOI?
BOI reported to FinCEN is to be maintained in a secure database and is FOIA-exempt. The Act limits FinCEN’s authority to disclose BOI to the following situations:
• To a United States federal agency engaged in national security, intelligence, or law enforcement activity, for use in furtherance of such activity.
• To a state, local or tribal law enforcement agency for use in a criminal or civil investigation, but only following court-ordered disclosure.
• To a United States federal agency to provide to a foreign law enforcement agency, prosecutor, or judge under an international treaty, agreement or convention, or pursuant to certain requests from the foreign government in the absence of an applicable treaty, agreement or convention.
• To a financial institution to confirm customer due diligence information required to be provided to the financial institution by other laws, but only with the consent of the Reporting Company.
How to File a Report
Reports must be filed through FinCEN’s filing portal, with minor exceptions for truly unusual circumstances. Please visit https://boiefiling.fincen.gov/ to file a report.
Additional Guidance
FinCEN has prepared several FAQs and brochures on the Act’s requirements, exemptions and implementation, including a Small Entity Compliance Guide. Please visit https://www.fincen.gov/boi to find additional information.
If you would like to discuss this information and how the Corporate Transparency Act may affect you, please contact an attorney in our Business Services practice group.
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(1) This category includes business trusts formed by a secretary of state filing. Notably, it does not include common law trusts, such as those commonly used in estate planning.
Background
The Act became federal law in 2021. It grew out of the sense of Congress that “malign actors seek to conceal their ownership” of legal entities in the United States “to facilitate illicit activity,” including money laundering, terrorist financing, human, drug and arms trafficking, and tax fraud. The Act seeks to address this concern by requiring certain legal entities to self-report BOI to the Financial Crimes Enforcement Network, part of the U.S. Department of the Treasury (FinCEN), for use in facilitating national security, intelligence and law enforcement activities and confirming BOI provided to certain financial institutions.
The Act leaves the mechanics of reporting BOI to be prescribed by regulations promulgated by the Secretary of the Treasury. Following substantial delay, the regulations were promulgated in final form on September 30, 2023, and became effective January 1, 2024.
What Companies Are Required To Submit BOI Reports?
The Act starts from a presumption that an entity with a United States domicile or place of business formed by way of a governmental filing is covered, then provides a number of exemptions from the requirement. It sorts entities required to submit BOI reports (Reporting Companies) into two categories:
• Domestic Reporting Companies – corporations, LLCs and other entities created by the filing of a document with a secretary of state or similar office in the United States, unless an exemption applies. (1)
• Foreign Reporting Companies – entities (including corporations and LLCs) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office in the United States, unless an exemption applies.
What Entities Are Exempt From Reporting Company Status?
The Act provides exemptions from its reporting requirements for 23 categories of entities, and grants FinCEN authority to designate additional exemptions by rule-making (FinCEN has not done so at this point). Most of the exempt categories apply to banks, credit unions, other types of finance companies, securities brokers and dealers, investment companies, investment advisers, venture capital fund advisers, insurance companies, state-licensed insurance producers, publicly traded companies, Commodity Exchange Act registered entities, and other entities already required to provide substantial identifying information to the government, including public accounting firms registered under the Sarbanes-Oxley Act, as well as governmental authorities. Also exempted are a large number of tax-exempt entities (including those exempt under Section 501(c) of the Internal Revenue Code) and certain entities providing financial assistance for them, and certain “inactive” entities.
For entities with active business operations not fitting into one of the foregoing exemptions, the primary focus will be on the “large operating company” exemption. To qualify for this exemption, the entity must:
• Employ more than 20 people on a full-time basis in the United States. “Full-time” means at least 30 hours per week, and the testing is by employee (i.e., part-time employees cannot be counted together as FTEs) and solely for the entity itself (i.e., employees of subsidiaries are not counted);
• Have filed a federal income tax return in the United States demonstrating more than $5,000,000 in gross receipts or sales (unlike for employees, this does take into account gross receipts or sales of subsidiaries). The regulations state this determination should be made after “excluding gross receipts or sales from sources outside the United States”; and
• Have an operating presence at a physical office in the United States.
Finally, entities owned or controlled, directly or indirectly, by one or more of the entities falling into many of the other exemption categories (including large operating companies) are also exempt.
Note that entities that are initially exempt may become Reporting Companies as circumstances change, in which case a BOI report will need to be filed within 30 days, and entities that are initially Reporting Companies may become exempt. By way of examples of the first, a Large Operating Company may dip below 20 full-time employees or $5,000,000 in United States sales, or a subsidiary of a Large Operating Company too small to be exempt itself may get transferred to new ownership; in either of these cases, they will become Reporting Companies. On the other hand, an entity newly formed to acquire the business and assets of a Large Reporting Company will not become exempt until it has filed a federal tax return with sufficient sales and otherwise satisfied Large Operating Company requirements, unless it has another basis for exemption (e.g., as a subsidiary of an existing Large Operating Company).
When are Filings Required?
A Reporting Company will need to file an initial BOI report:
• Prior to January 1, 2025, if the Reporting Company was in existence prior to January 1, 2024 (or registered to do business in the United States prior to January 1, 2024, in the case of a Foreign Reporting Company).
• Within 30 days (extended to 90 days during 2024 only) following creation (or registration to do business in the United States if a Foreign Reporting Company) if the Reporting Company came into existence (or first registered to do business in the United States) on or following January 1, 2024.
• Within 30 days following ceasing to be exempt, if previously an exempt entity.
As discussed below, updated reports will be required to be filed by a Reporting Company within 30 days following changes to relevant information about the Reporting Company itself or any of its Beneficial Owners.
Filing Fees
There is no fee for filing a BOI report.
What Information Is Required To Be Reported?
Each Reporting Company will need to report information about itself and its Beneficial Owners (discussed more below). In addition, Reporting Companies formed (or first registered to do business in the United States) on or following January 1, 2024, will need to report information on one or two Company Applicants (discussed more below).
Reporting Company Information:
• Full legal name
• All trade names or “doing business as” (DBA) names
• Complete current United States address (either the address of the principal place of business in the United States, or, if the Reporting Company’s principal place of business is not in the United States, the primary location in the United States where the Reporting Company conducts business)
• State, tribal, or foreign jurisdiction of formation
• For a Foreign Reporting Company only, state or tribal jurisdiction of first registration
• Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN); a Foreign Reporting Company which has not been issued a TIN should report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction)
Beneficial Owner Information:
• Full legal name
• Date of birth
• Residential street address
• Unique identifying number from (and the issuer of) a non-expired (a) United States driver’s license, (b) United States passport, or (c) identification document issued by a state (including a United States territory or possession), local government, or Indian tribe; or, if none of those documents exist, a non-expired foreign passport
• An image of the document from which the unique identifying number is located.
Beneficial Owners are discussed more below. Note that only individuals can be identified as Beneficial Owners, and every Reporting Company must have at least one. Also note that the details as to why an individual is a Beneficial Owner need not be reported.
Company Applicant Information:
Company Applicants are individuals involved in forming (or registering) a Reporting Company. Each Reporting Company created (or first registered to do business in the United States) on or following January 1, 2024, is required to identify at least one Company Applicant, and at most two, in its report. In the case of a Domestic Reporting Company, one Company Applicant is the individual who directly files the document that forms the entity. In the case of a Foreign Reporting Company, one Company Applicant is the individual who directly files the document that first registers the entity to do business in the United States. A second Company Applicant must be reported if more than one individual is involved in the filing, and would be the individual who directs or controls the filing of the document by the direct filer. The information required to be reported for each Company Applicant is the same as identified above for a Beneficial Owner, except that if the Company Applicant forms or registers Reporting Companies in the course of the Company Applicant’s business (e.g., an attorney or paralegal), the street address of the Company Applicant’s business may be substituted for a residential address. Note that Company Applicant information is not required for Domestic Reporting Companies formed prior to January 1, 2024, or Foreign Reporting Companies that first registered to do business in the United States prior to January 1, 2024, and need not be updated for changes (although corrections are required if the initially reported information was incorrect).
FinCEN Identifiers:
Individuals who expect to be identified in reports for multiple Reporting Companies, whether as Beneficial Owners, Company Applicants, or both, may obtain a FinCEN Identifier by submitting to FinCEN the information required above. In such a case, the Beneficial Owner will need to directly update the information submitted as necessary. In the case of such an individual, the Reporting Company will identify the individual as required by use of the FinCEN Identifier in lieu of providing the information identified above.
Reporting Companies will also be provided with FinCEN Identifiers.
Who Is A Beneficial Owner?
The whole point of the Act is to obtain information about each Beneficial Owner of each Reporting Company. Each Reporting Company must have at least one Beneficial Owner, and there is no prescribed cap on the maximum number of Beneficial Owners (unlike Company Applicants). But who exactly is a Beneficial Owner? As contemplated by the Act, the term has a much broader meeting than the word “owner” implies. First, a Beneficial Owner must be an individual (as opposed to an entity or a trust, although an individual acting on behalf of an entity or trust holding an ownership interest in a Reporting Company may be a Beneficial Owner). Second, the individual must, directly or indirectly, either (a) own or control at least 25 percent of the “ownership interests” of the Reporting Company, or (b) exercise “substantial control” over the Reporting Company.
25% Direct or Indirect Ownership or Control of Ownership Interests:
• “Ownership interests” are equity, stock, or similar instruments, preorganization certificates or subscriptions, transferable shares, voting trust certificates, and similar interests, whether or not having voting rights; capital or profits interests in an entity; instruments convertible into any of the foregoing; puts, calls, straddles and other options or privileges of buying or selling any of the foregoing; and any “any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.”
• “Direct or indirect ownership or control” may exist by way of “any contract, arrangement, understanding, or otherwise.” Examples include joint ownership, use of a nominee, agent or custodian to hold, or ownership through an intermediary entity. In the case of a trust or similar arrangement holding an ownership interest, ownership or control will be deemed to exist on the part of any trustee with authority to dispose of trust assets, a beneficiary entitled to all income and principle from the trust or with right to withdraw or demand distribution of substantially all of the assets from the trust, or settlor who can revoke the trust or otherwise withdraw the trust assets.
• A number of additional rules exist for determining satisfaction of the 25% requirement, depending on different factual scenarios. Where application of the rules to the facts at hand does not permit a clear calculation, e.g., due to having multiple types of “ownership interests,” the Reporting Company is left to perform the calculation separately for each “class or type of ownership interest,” and to report the BOI for individuals directly or indirectly owning or controlling 25% or more of each separate class or type.
“Substantial Control”:
An individual is deemed to have “Substantial Control” over the Reporting Company if the individual:
• Is a “senior officer” of the Reporting Company (specifically having the title, or exercising the authority, of the president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer performing a function similar to the any of the foregoing);
• Has authority (whether or not exercised) over the appointment or removal of a “senior officer” or a majority of the board of directors (or equivalent body) of the Reporting Company;
• Directs, determines, or has substantial influence over “important decisions” of the Reporting Company, including as to the nature, scope and attributes of the business, reorganization, dissolution or merger, major expenditures, issuing securities, incurring significant debt, approval of operating budgets, selection or termination of business lines or ventures, geographic focus, compensation schemes and incentive programs for “senior officers,” entering into, fulfilling or not fulfilling significant contracts, or amendments of governing documents; or
• Has “any other form of substantial control over the [R]eporting [C]ompany.”
Direct or Indirect Exercise of “Substantial Control”:
An individual may directly or indirectly (including as a trustee of a trust or similar arrangement) exercise “substantial control” over a Reporting Company through board representation, ownership or control of a majority of the voting power of the Reporting Company, rights associated with financing arrangements, control over intermediary entities, arrangements or financial or business relationships with other individuals or entities acting as nominees, or “any other contract, arrangement, understanding, relationship, or otherwise.”
Exceptions to being a “Beneficial Owner”:
There are some exceptions to reporting obligations in the case of individuals who would otherwise qualify as “Beneficial Owners”:
• A minor child, as defined under applicable state law, need not be reported on. However, a parent or legal guardian will need to be reported on in lieu of the child. Further, when the child ceases to be a minor under applicable law, the child will need to be reported on (assuming otherwise then meeting the definition of “Beneficial Owner”).
• An individual acting as a nominee, intermediary custodian, or agent of another individual need not be reported on (although the individual for whom the first individual is acting will need to be reported on).
• An employee of the Reporting Company acting solely as an employee and with no other economic benefit from the Reporting Company need not be reported on, so long as not a “senior officer” of the Reporting Company.
• An individual whose only interest in the Reporting Company is a future interest through right of inheritance need not be reported on; such an individual will need to be reported on if and when the inheritance is actually received, assuming it otherwise results in the individual being a Beneficial Owner.
• A creditor of the Reporting Company need not be reported on if the creditor’s only interest is through rights or interests for the repayment of debt, such as loan covenants intended to secure, or enhance the likelihood of, the repayment of indebtedness.
• Finally, an individual holding “ownership interests” in a Reporting Company indirectly through an exempt entity need not be reported on. Instead the Reporting Company would report merely the identity of the intervening exempt entity. Note also that an entity all of the ownership interests of which are held by one or more of many different types of exempt entities (including one or more Large Operating Companies) would itself be an exempt entity.
Updating And Correcting BOI Reports
A Reporting Company must update its BOI report within 30 days following changes to the Reporting Company or Beneficial Owner information required to be in its previously filed report. This includes significant changes (e.g., changes in identity of Beneficial Owners) and more mundane (address changes). It does not include all aspects of the information previously provided; for example, if driver license information was previously provided for a Beneficial Owner, the issuance of a new license on expiration would ordinarily not be required to be disclosed; however, if the Beneficial Owner relocated and obtained a license from a different state, the identification number and issuing state would need to be updated, and an image of the new license provided. There is no need to update information pertaining to a Company Applicant.
Corrected reports must be filed to correct inaccurate information in previously filed reports within 30 calendar days of when the Reporting Company becomes aware or has reason to know of the inaccuracy of information in the earlier report. A corrected report filed within 90 calendar days of the initial report filing to correct an inaccuracy in the initial report provides a safe harbor from penalty for filing an inaccurate report.
Failure to File a Report
The willful failure to timely report complete (or updated) required information to FinCEN, or the willful provision of or attempt to provide false or fraudulent required ownership information may result in civil and/or criminal penalties. Potential penalties include a civil penalty of up to $500 for each day that the violation continues, a maximum fine of up to $10,000, imprisonment for up to two years, and both a fine and imprisonment. “Senior officers” of a Reporting Company may be held personally accountable for failures of the Reporting Company. In addition, a person (including a Beneficial Owner) may be subject to civil and/or criminal penalties for willfully causing a Reporting Company not to file a required BOI report or update, or to report incomplete or false BOI to FinCEN.
With Whom May FinCEN Share Reported BOI?
BOI reported to FinCEN is to be maintained in a secure database and is FOIA-exempt. The Act limits FinCEN’s authority to disclose BOI to the following situations:
• To a United States federal agency engaged in national security, intelligence, or law enforcement activity, for use in furtherance of such activity.
• To a state, local or tribal law enforcement agency for use in a criminal or civil investigation, but only following court-ordered disclosure.
• To a United States federal agency to provide to a foreign law enforcement agency, prosecutor, or judge under an international treaty, agreement or convention, or pursuant to certain requests from the foreign government in the absence of an applicable treaty, agreement or convention.
• To a financial institution to confirm customer due diligence information required to be provided to the financial institution by other laws, but only with the consent of the Reporting Company.
How to File a Report
Reports must be filed through FinCEN’s filing portal, with minor exceptions for truly unusual circumstances. Please visit https://boiefiling.fincen.gov/ to file a report.
Additional Guidance
FinCEN has prepared several FAQs and brochures on the Act’s requirements, exemptions and implementation, including a Small Entity Compliance Guide. Please visit https://www.fincen.gov/boi to find additional information.
If you would like to discuss this information and how the Corporate Transparency Act may affect you, please contact an attorney in our Business Services practice group.
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(1) This category includes business trusts formed by a secretary of state filing. Notably, it does not include common law trusts, such as those commonly used in estate planning.
