BOI and Corporate Transparency Act 2024

Starting from January 1, 2024, any corporations, limited liability companies (LLCs), and other entities established in the United States through the submission of a document to the secretary of state or a comparable office or formed in a foreign country and authorised to conduct business in a state through the submission of a document to a secretary of state or similar office must, unless exempted, submit a report on Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network.

Under the Corporate Transparency Act (CTA), the Beneficial Ownership Information (BOI) report is mandated by federal law. The report, which must be comprehensive, discloses essential details about all beneficial owners of a company. Failure to submit a thorough report can lead to substantial civil and criminal penalties.

‍Adhering to the BOI reporting obligation necessitates comprehending the meaning of a "beneficial owner" under the CTA. The final reporting rule, established by FinCEN to implement the BOI reporting requirements outlined in the CTA, delves into the specifics of this definition.

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What constitutes a beneficial owner? 

For a reporting company, which refers to any entity obligated to submit a BOI report, a beneficial owner is identified as an individual who, either directly or indirectly, possesses substantial control over the reporting company or holds or controls a minimum of 25 percent of the ownership interests in the reporting company.

What qualifies as "substantial control"?

An individual is liable to exercise substantial control over a reporting company if the individual:

(A) Holds a senior officer position;

(B) Wields authority concerning the appointment/removal of any senior officer/majority of the board of directors (or a similar body);

(C) Directs, determines, or significantly influences crucial decisions made by the company, encompassing choices related to:

(1) The nature, extent, and attributes of the business, such as the sale, lease, mortgage, or other transfer of its principal assets;

(2) The reorganisation, dissolution, or merger of the company;

(3) Significant expenditures or investments, equity issuances, incurring substantial debt, or approval of its operating budget;

(4) The selection/termination of business lines or ventures, or geographic focus;

(5) Compensation structures and incentive programs for senior officers;

(6) The initiation or termination, or the fulfilment or non-fulfilment, of significant contracts;

(7) Amendments to substantial governance documents and important policies or procedures; or

(D) Holds any other form of substantial control over the reporting company.

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What defines a senior officer?

The designation "senior officer," concerning the assessment of substantial control, refers to any individual occupying the role or wielding the authority equivalent to that of a: 

• President, 
• Chief Financial Officer, 
• General counsel, 
• Chief Executive Officer, 
• Chief operating officer, 
• Or any other officer with a similar function, irrespective of their official title.

Control can manifest either directly or indirectly. An individual may exert control directly or indirectly, which includes serving as a trustee of a trust or a comparable arrangement, through:

(A) Representation on the board;

(B) Ownership or command of a majority of the voting power or voting rights;

(C) Entitlements associated with any financial arrangement or interest in a company;

(D) Domination over one or more intermediary entities that, individually or collectively, wield substantial control over a reporting company;

(E) Agreements or financial or business connections with other individuals or entities functioning as nominees or

(F) Any other contract, arrangement, understanding, relationship, or similar means.

How is "ownership interest" defined?

The term "ownership interest" encompasses:

(A) Any equity, stock, or similar instrument; pre-organisation certificate/ subscription/transferable share of/voting trust certificate/certificate of deposit for an equity security, interest in a joint venture/certificate of interest in a business trust (irrespective of its transferability, classification as stock or a similar asset, or provision of voting power or voting rights);

(B) Any capital or profit interest;

(C) Any instrument convertible into any share or instrument described in (A) or (B), any future on any such instrument/any warrant or right to purchase/sell/subscribe to a share or interest described in (A) or (B), regardless of whether characterised as debt;

(D) Any put, call, straddle, or other option/privilege of buying/selling any of the items described in (A), (B), or (C) without an obligation to do so, unless created and held by a third party/third parties without the knowledge or involvement of the reporting company;

(E) Any other instrument/contract/arrangement/understanding, relationship/mechanism to establish ownership.

Ownership can be either direct or indirect

An individual may possess or influence an ownership interest in a reporting company directly or indirectly through any contract, arrangement, understanding, relationship, or other means, including:

(A) Co-ownership with one or more other individuals, sharing an undivided interest in that ownership interest;

(B) Utilising another individual as a nominee, intermediary, custodian, or agent, representing them in this capacity;

(C) Serving as a trustee, grantor, settlor, or beneficiary of a trust or a comparable arrangement that holds the said ownership interest;

(D) Exerting control or ownership over one or more intermediary entities or having control or ownership of the ownership interests of such entities, which individually or collectively possess or control ownership interests in the reporting company.

Who is excluded from being a "beneficial owner"?

The term "beneficial owner" does not encompass:

(A) A minor child, given that the reporting company discloses the required information about a parent or legal guardian;

(B) An individual serving as a nominee/intermediary/custodian/agent on behalf of another individual;

(C) An employee of a reporting company, functioning solely in an employment capacity, whose significant control over or economic benefits from the entity is derived exclusively from their employment status, provided they are not a senior officer;

(D) An individual whose sole interest lies in a future interest through a right of inheritance;

(E) A creditor of a reporting company.

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What details regarding beneficial owners are required for reporting?

In its BOI report, a reporting company is obligated to furnish the following personal and identifying information for each of its beneficial owners:

• Legal name
• Date of birth
• Residence address
• Identifying number and issuing jurisdiction from a driver's license, passport, or another authorised document
• An image of the document containing the aforementioned number.

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When is the deadline for submitting the initial report containing beneficial owner information?

For reporting companies established or registered before January 1, 2024, the filing period opens on January 1, 2024, and the report must be submitted by January 1, 2025. 

Reporting companies formed or initially registered between January 1, 2024, and January 1, 2025, are required to file their initial report within 90 days from the date of receiving actual or public notice of their formation or registration. 

Reporting companies established or initially registered on or after January 1, 2025, must file their initial report within 30 days of receiving actual/ public notice of their formation or registration.

Commencing January 1, 2024, small business proprietors must submit a novel and highly personal report under the federal Corporate Transparency Act (CTA) – failure to comply carries severe civil and criminal consequences, including substantial fines and potential incarceration. 

In essence, adherence to these requirements is obligatory.

FinCEN has issued a conclusive rule mandating specific entities to submit reports to The Financial Crimes Enforcement Network, delineating two distinct categories of personnel: the beneficial owners of the entity plus individuals who have submitted applications to designated governmental authorities for the establishment or registration of the entity to conduct business. 

These regulations result from Section 6403 of the Corporate Transparency Act (CTA), incorporated into law under the National Defense Authorization Act for Fiscal Year 2021 (NDAA). They outline the reporting obligations, required information, and deadlines. 

The aim is to prevent money laundering, tax fraud, and other illicit activities while simultaneously reducing the administrative burden on businesses operating within the United States.

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What is the report on Beneficial Ownership Information (BOI) and the Corporate Transparency Act? 

This specific report is referred to as Beneficial Ownership Information (BOI), a component of the Corporate Transparency Act enacted by Congress in 2021 to establish consistent reporting standards for businesses. The BOI provides detailed information about the personal ownership of a business, containing personal identification details about the company's beneficial owners. 

Notably, the Corporate Transparency Act is a component of the federal Anti-Money Laundering Act of 2020 (AML Act).

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Who has to file the BOI report?

Business proprietors are required to submit the BOI to FinCEN, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury, which administers the regulations specifying the individuals obligated to file a report, the filing deadlines, and the requisite information. 

The Corporate Transparency Act (CTA) stands out as the most consequential federal legislation influencing businesses since the U.S. Securities Laws of the 1930s. Although this reporting format is a recent introduction in the United States, it is already prevalent in numerous other advanced nations.

What Is the Timeline for Reporting Beneficial Ownership?

Entities established or registered for business before January 1, 2024, are required to submit their initial beneficial ownership report by January 1, 2025. For companies created or registered after January 1, 2024, there is a 90-day window for filing a beneficial ownership report. This period begins upon the company's receipt of notice from the Secretary of State or another relevant office confirming the effectiveness of its creation or registration.

What Details Must Companies Incorporate in a Beneficial Ownership Report?

The beneficial ownership report should encompass the following information:

1. Legal name of the business and any trade names or "doing business as" (DBA) names.
2. Present street address of the principal place of business in the U.S.
3. Jurisdiction of formation or registration.
4. Taxpayer identification number.
5. Personal details of all beneficial owners, including their name, date of birth, and address.
6. A distinctive identifying number from an approved identification document, such as a U.S. state-issued driver's license or passport.

Furthermore, the company is required to submit an image of the identification document to FinCEN.

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What are the consequences of Failing to adhere to the Beneficial Ownership Rule?

Businesses failing to comply with the reporting obligations for beneficial ownership information may incur significant penalties. Any company neglecting to submit a mandated beneficial ownership report or make necessary amendments by the specified deadline may be fined $500 per day, with a maximum penalty capped at $10,000.

For wilful violations or knowingly providing false information, the is considered a felony, carrying a potential sentence of up to two years in prison. If coupled with violations related to anti-money laundering, the penalty can extend to a maximum of 10 years of imprisonment.‍

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Who Qualifies for Exemption from the Corporate Transparency Act?

A corporation, LLC, or any other entity is exempt from being designated a reporting company. It is, therefore, not obligated to file a report if it meets the criteria for any of the 23 exemptions outlined in the Corporate Transparency Act & the final rule implementing the reporting requirement (refer to 31 CFR 1010.380(C)(2)). 

The following is a comprehensive list of all 23 exemptions:

1. Securities reporting issuer
2. Governmental authority
3. Bank
4. Credit union
5. Depository institution holding company
6. Money services business
7. Broker or dealer in securities
8. Securities exchange or clearing agency
9. Other Exchange Act registered entity
10. An investment company or investment adviser
11. Venture capital fund adviser
12. Insurance company
13. State-licensed insurance producer
14. Commodity Exchange Act registered entity
15. Accounting firm
16. Public utility
17. Financial market utility
18. Pooled investment vehicle
19. Tax-exempt entity
20. Entity assisting a tax-exempt entity
21. Subsidiary of certain exempt entities
22. Inactive entity

There is also an exception tailored for "large operating companies." 

Large Operating Companies Exemption:

1. Employs more than 20 full-time employees in the U.S.
2. Operates from a physical office within the U.S.
3. If the company has submitted a federal tax return for the preceding year, documenting gross receipts or sales surpassing $5 million.

Definition of Operating Presence at a Physical Office within the United States:

• An entity regularly conducts its business at a physical location in the U.S.
• The location is owned or leased by the entity.
• The physical location is distinct from the place of business of any other unaffiliated entity.

‍Who can Access the Beneficial Ownership Information under the Corporate Transparency Act?

Under the Corporate Transparency Act, the following entities and officials can access beneficial ownership information:

Authorised Officials

• Federal, State, local, and Tribal officials.
• Certain foreign officials who submit a request through a U.S. Federal government agency.

Purpose of Access

• Access is granted for authorised national security, intelligence, and law enforcement activities.

Access by Financial Institutions

• Financial institutions may access beneficial ownership information in specific situations.
• Consent of the reporting company is required for such access.

Regulators of Financial Institutions

• Regulators of financial institutions will have access to beneficial ownership information during their supervision of the respective financial institutions.

Rules and Security Measures

• FinCEN is in the process of developing rules governing access to and the handling of beneficial ownership information.

• The reported beneficial ownership information will be securely stored in a non-public database using robust information security methods and controls akin to those employed in the Federal government for safeguarding sensitive yet unclassified information systems at the highest security level.

• FinCEN will collaborate closely with authorised entities to ensure they comprehend their roles and responsibilities. This is to guarantee that the reported information is utilized solely for authorised purposes and handled in a manner that preserves its security and confidentiality.

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