On September 30, 2022, FinCEN issued the final rules that will require all business entities to file a Beneficial Ownership Information Report. The law will go into effect on January 1, 2024. There will be civil and criminal penalties for not filing this paperwork.
What is the Corporate Transparency Act?
The Corporate Transparency Act (page 2996) is a new federal regulation (HR 6395) that will affect over 30 million businesses in the United States.
The purpose of the Corporate Transparency Act is to prevent criminals from using U.S. LLCs, Corporations, and other business entities as anonymous shell companies for illegal activities.
The Act is enforced by FinCEN (Financial Crimes Enforcement Network) – a federal department that is responsible for safeguarding the U.S. financial system against illegal activity, such as money laundering, fraud, corruption, and terrorist financing.
The Corporate Transparency Act became law on January 1, 2022, but it won’t go into full effect until January 1, 2024.
This act will require all Reporting Companies to report beneficial ownership information to the federal government.
What is a Reporting Company?
According to the Corporate Transparency Act, a Reporting Company is:
“A Corporation, Limited Liability Company (LLC), or other similar entity that is created by the filing of a document with a Secretary of State or a similar office under the law of a State or Indian Tribe.”
In simpler terms, the Corporate Transparency Act will impact every U.S. business structure, including:
- Limited Liability Companies (LLC)
- Limited Partnerships
- Limited Liability Partnerships
- Any other other entities created by filing a document with a state Secretary of State
- Any entity formed in a foreign country that is registered to do business in the US
If a company is considered a Reporting Company, then they must follow the rules of the Corporate Transparency Act and file a Beneficial Ownership Information Form.
What information goes in the Beneficial Ownership Information Form (BOI Report)?
The following information must be reported to FinCEN for all Beneficial Owners:
- Full legal name
- Date of birth
- Current address
- Unique identifying number
Address: The address can be a residential address or a business street address. If you use a residential address, it should be the same address that you use on your personal tax return.
Unique identifying number: This is a unique number from a government-issued identification (aka acceptable identification document). For example, a driver’s license number, state identification card number, passport number, or military identification card.
The following information must be reported to FinCEN for the company:
EIN Number: If the company has not obtained an EIN from the IRS yet, it can use a Dun & Bradstreet Number (DUNS) or the company’s Entity ID Number issued by the Secretary of State (aka Legal Entity Identifier).
What is a Beneficial Owner?
The definition of a Beneficial Owner is any individual who directly or indirectly:
- owns or controls 25% or more of the company, or
- exercises substantial control over the company.
These ownership interests or substantial control can be through any contract, arrangement, understanding, or relationship.
The following are not considered Beneficial Owners:
- A minor child (as defined in the state where the company was formed) if the information of the parent or guardian is reported
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
- A non-owner employee of the company
- An individual whose only interest in the company is through a right of inheritance
- A creditor of the company
“Company Applicants” must also be included in the Beneficial Ownership Information Form
Note: Company Applicants will only be need for BOI Reports for companies formed after January 1, 2024. Companies formed before then, will just report Beneficial Owners.
As a part of the new final regulations (issued September 30, 2022), along with the Beneficial Owners, the “Company Applicants” must also be listed in the Beneficial Ownership Information Form (BOI Report).
A Company Applicant would be the person who files the application for the LLC (typically the LLC Organizer).
Here is how it’s defined by FinCEN:
- The individual who directly files the document that creates the entity, or
- The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
Said another way, even if you’re not the LLC Organizer, but you are truly the one who is desiring the LLC be formed, and putting that into action (directly or indirectly), you will be considered a “Company Applicant” and your information must go on the BOI Report.
Are there penalties for failure to file?
Yes, there are both civil and criminal penalties for failing to file or submitting false information.
- Civil penalty: Up to $500 per day for each day the violation continues or has not been remedied.
- Criminal penalty: Up to a $10,000 fine or prison for up to 2 years (or both).
Is the database available to the public?
No, the database is not publicly available.
The database is available to:
- US federal government
- US federal law enforcement
- US banks
- State and local law enforcement (if a court order is obtained)
How to file the Beneficial Owner Information Form
As of the end of 2022, this is still not finalized.
Please bookmark this page and check back in mid-2023 (we’ll have step-by-step instructions).
Reporting requirements: Newly formed business
For LLCs created after January 1, 2024, they will have 30 days (after the LLC is approved) to file an Initial Report.
Reporting requirements: Existing business
For LLCs created before January 1, 2024, they will have 1 year (until January 1, 2025) to file an Initial Report.
Reporting requirements: Beneficial Ownership changes
If there are any changes to the existing Beneficial Owners (or owners are added or removed), an updated report must be submitted to FinCEN within 30 days of the change.
What businesses are exempt from this reporting?
The following businesses are exempt from submitting a Beneficial Ownership Information Form (because this information is already provided to the government by these financial institutions):
- SEC reporting issuer
- Governmental authority
- Credit union
- Depository institution holding company
- Money transmitting business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund advisor
- Insurance company
- State-licensed insurance producer
- 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
- more than 20 employees
- operating in the US
- and over $5M in sales or gross receipts
- Subsidiary of certain exempt entities
- Inactive entity
- Was in existence on or before January 1, 2020,
- Is not engaged in active business,
- Is not owned by a foreign person, whether directly or indirectly, wholly or partially,
- Has not experienced any change in ownership in the preceding 12-month period,
- Has not sent or received any funds in an amount greater than $1,000 in the preceding 12-month period, and
- Doesn’t hold any kind or type of assets, whether in the United States or abroad, including but not limited to any ownership interest in any Corporation, LLC, or other similar entity.
For more details on any of the above, please see the exemptions from the proposed regulations.
Corporate Transparency Act FAQs
Said another way, all Limited Liability Companies need to file a Beneficial Ownership Information Form with FinCEN (the Financial Crimes Enforcement Network).
A DBA Name is simply a “nickname” owned and used by an existing business (like an LLC or Corporation), or by a person (usually operating their business as a Sole Proprietorship or General Partnership).
If your DBA Name is owned by a Reporting Company (like an LLC, Corporation, or other business entity), then yes, you need to file a Beneficial Ownership Information Form.
If your DBA Name is owned by your or your business partnership, and you’re operating as a Sole Proprietorship or General Partnership, then no, you don’t need to file a Beneficial Ownership Information Form. This is because Sole Proprietorships and General Partnerships aren’t considered formal business entities.
Federal Register: Beneficial Ownership Information Reporting Requirements
American Bar Association: Beneficial Ownership Disclosure Is Going to Happen
FinCEN: Beneficial Ownership Information Reporting Notice of Proposed Rulemaking
FinCen: Beneficial Ownership Information Reporting Rule Fact Sheet (Sept 30, 2022)