by Eric D. Morton
On January 1, 2024, the Federal Corporate Transparency Act of 2019 went into effect. Almost every small business entity in the United States will need to comply with its reporting requirements. The act was passed as a means of fighting money laundering. The law requires business entities to report Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FCEN) of the U.S. Department of Treasury. The law was passed, in part, because many countries, particularly in Europe, have passed similar laws. The United States needed a similar law or companies in the U.S. would face difficulties doing business overseas.
Entities that existed before January 1, 2024 must report their BOI before January 1, 2025. Entities that are organized after January 1, 2024 must report their BOI within 90 days of formation.
Who must report
Almost all business entities must report their BOI. All corporations and limited liability companies that were created by the filing of a document with state Secretary of State or Indian Tribe must report – which is every corporation and LLC formed in the U.S. Foreign country entities must report if they do business in the U.S. There are 23 listed types of companies that are exempt. These include banks and credit unions, securities exchanges, insurance companies, public utilities, tax-exempt entities, accounting firms and others. Almost no active for-profit company is exempt unless they are a Large Operating Company.
A Large Operating Company is a corporation or LLC with more than 20 full-time employees that are employed and located in the United States, and has physical office (which it owns or leases) in the U.S. from which it regularly conducts business, and has filed a Federal return the previous year showing at least $5 million in gross revenues. If a company doesn’t meet that criteria, or fits into another exemption, then it must report it BOI.
What must a corporation or LLC report
Companies must report their company information and BOI. BOI is the identity of the beneficial owners of the company. A beneficial owner is any individual who exercises substantial control over the company, and/or who owns or controls more 25 percent of the ownership interests in the company. Most companies will have more than one beneficial owner.
An individual has substantial control over a company if (1) the individual is a senior officer; (2) the individual has authority to appoint or remove certain officers or a majority of directors of the company; (3) the individual is an important decision-maker; or (4) the individual has any other form of substantial control over the company such as the ability to remove or appoint a senior officer. Senior officers are Manager, Member-Manager, Chief Executive Officer, President, Chief Financial Officers, General Counsel, Chief Operating Officer or any officer who exercises similar authority over a company’s operations.
An individual who has substantial control over a company does not need to have any ownership interest (e.g. shares of stock in a corporation or a membership interest in a LLC) to be a beneficial owner and vice-versa – the passive owner of 25 percent of the stock in a corporation or the membership interests in a LLC is still a beneficial owner for these purposes. A CEO of a corporation who owns no stock in the corporation is still a beneficial owner.
A company must report its full legal name, current U.S. address, the state (or tribe) or foreign country in which it was formed, and its employer identification number (EIN). For beneficial owners, the company must report each individual’s full legal name, date of birth, current residential street address, and a unique identifying number and the image of one of the following documents: U.S. Passport, State driver’s license, or identification document issued by the a state or local government or tribe.
Companies will need to obtain the above information and a scan of the one the listed documents from the individuals who are beneficial owners.
Entities organized after January 1, 2024 must file their BOI report within 90 days of formation. The report for new entities must also include individual information for Company Applicants. A Company Applicant is anyone who file the formation document (e.g. articles of incorporation) and anyone who directed the filing of the formation document. This means that attorneys who file articles on behalf of clients are Company Applicants – as are their clients.
How to file
Corporations and LLCs can file their reports through the FCEN website filing system: https://boiefiling.fincen.gov/
FCEN has great deal of information: https://www.fincen.gov/boi including Help https://boiefiling.fincen.gov/help and Frequently Asked Questions
I highly recommend that business owners educate themselves before filing. FCEN published a Small Entity Compliance Guide which can be obtained here: https://fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf This gives a step by step guide for small business owners as to what to report and how to report.
Eric D. Morton is the principal attorney at Clear Sky Law Group, P.C. He can be reached at 760-722-6582, 510-556-0367, or emorton@clearskylaw.com.