FinCEN BOI Reporting is Now Live: Do Your Small Business Clients Have to File?

Many small business clients have recently been surprised to learn that they will now be subject to federal information reporting requirements. Under the Corporate Transparency Act (CTA), which was passed back in January of 2021, nearly all entities formed or registered to conduct business in the U.S. must report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). The new law created a federal database where information about an entity’s ownership structure will now be stored. The law is designed to limit taxpayers’ ability to use shell companies and ownership structures that can allow money laundering and other criminal activity to take place through those entities. The rules are now effective—and the exemptions are limited—so nearly every small business client must prepare to report basic BOI in the coming months.

2024 BOI Reporting Obligations: The Basics

FinCEN’s new beneficial ownership reporting obligations apply to all domestic “reporting companies”. That includes corporations, LLCs (including single-member LLCs), limited partnerships and any other entity formed by filing a document with a Secretary of State in the United States. Certain foreign corporations that are registered to conduct business in the U.S. must also report. Both foreign and domestic reporting companies must identify and provide information about beneficial owners to FinCEN.

A "beneficial owner" is a natural person who either 1) exercises substantial control over the company or 2) owns or controls 25% or more of the ownership interests in the company (whether directly or indirectly). When making the determination of whether an individual owns or controls 25% of the business, the individual's options, convertible instrument and other similar equity rights are treated as though they have been exercised.

An individual is deemed to exercise “substantial control” over the company if they (1) serve as manager or senior officer (president, CEO, CFO, etc.), (2) have the right to appoint a majority of the board of directors or governing body, or (3) otherwise have substantial influence over decisions made by the reporting company.

For new entities, information about a “company applicant” must also be provided. If the entity was created on or after January 1, 2024, information about a maximum of two company applicants will be required. A company applicant is (1) an individual who directly files the document to create or register the company (e.g., with the Secretary of State), or (2) the individual who is primarily responsible for directing or controlling the filing when more than one person is involved.

In many cases, a corporate formation agent or attorney who is responsible for filing formation documents with the Secretary of State (or similar office) will be the company applicant. FinCEN provides examples outlining various scenarios to help companies determine who is primarily responsible for their filings.

What Information is Required?

The reporting company itself must report the entity's (1) legal name, (2) any trade names or dba names, (3) principal place of business, (4) state of formation and (5) unique taxpayer ID number.

For each beneficial owner, the company must disclose (1) full legal name, (2) date of birth, (3) address, (4) identifying number from the individual's ID (driver's license or passport) and (5) a copy of the ID used.

For each company applicant, the following information is required: the individual’s (1) name, (2) date of birth, (3) address and (4) information from the individual’s ID (e.g., passport or driver’s license), including the document number and jurisdiction.

Entities created before January 1, 2024 must file their report before January 1, 2025. Entities registered after January 1, 2024 have 90 days from the date their registration becomes effective to report the required information. The FinCEN registration portal opened on January 1, 2024 and is available at https://boiefiling.fincen.gov/

That said, these are not annual reporting requirements. Reporting companies must only update their filings if there are any changes with respect to the information that has already been filed (information about the company applicant need not be updated). Companies must also update reports to fix any inaccuracies within 30 days of learning of the error.

Are There Any Exemptions to the New BOI Requirements?

Most small business clients will not qualify under the exemptions that FinCEN has created. The law does create exemptions for tax-exempt entities, certain political organizations and inactive organizations that are no longer conducting business.

Other exempt entities include banks, credit unions, money services businesses, securities brokers, securities exchanges, accounting firms, pooled investment vehicles, public utilities, financial market utilities, state-licensed insurance producers, venture capital fund advisors and Exchange Act-registered entities. Subsidiaries of certain exempt entities may also be exempt.

Broadly speaking, most entities that are exempt are only exempt because they’re already subject to regulatory reporting obligations under a separate regime.

Conclusion

In the end, most business entities will be classified as reporting companies under the FinCEN reporting structure if they filed any formal paperwork with a state to create the entities (i.e., sole proprietors are not subject to the reporting rules). However, advisors should check to see whether a business client qualifies for an exemption sooner rather than later.

Your questions and comments are always welcome. Please post them at our blog, AdvisorFYI, or call the Panel of Experts.