As a part of the Corporate Transparency Act, most businesses that operate in the U.S. will be required to report information about their beneficial owners to the federal government beginning on January 1, 2024. Failure to properly make this report will incur substantial penalties of $500/day for noncompliance and federal criminal liability, so it is vital that all business owners understand and comply with this new requirement. This blog will give you an overview of the requirements and explain how Skufca Law can help your business stay compliant in this new landscape.
As 2023 comes to close and we look ahead to the new year, one major development on the horizon for businesses is the new “Beneficial Ownership Information” (BOI) reporting requirement that the federal government is placing on U.S. business. This requirement is a part of the U.S. Treasury’s Financial Crimes Enforcement Network’s (FinCEN’s) attempt to detect and prosecute money laundering and other financial crimes committed on U.S. soil.
Does Your Business Need to Report?
Probably. Aside from a few exceptions, all LLCs, LLPs, partnerships, corporations, and other entities which were registered by filing creation document in any state secretary of state will need to file this report.
So, if you have an LLC that was created by filing Articles of Organization with the North Carolina Secretary of State, your business is subject to this reporting requirement.
The Act carved out 23 exceptions, but these are primarily for highly regulated businesses that are already required to report ownership information to the federal government. These exceptions are:
| • Securities reporting issuers • Governmental authorities • Banks • Credit unions • Depository institution holding companies • Money services businesses • Brokers or dealers in securities • Securities exchange or clearing agencies • Other Exchange Act registered entities • Investment companies or investment advisers • Venture capital fund advisers • Insurance companies | • State-licensed insurance producers • Commodity Exchange Act registered entities • Accounting firms • Public utilities • Financial market utilities • Pooled investment vehicles • Tax-exempt entities • Entities assisting a tax-exempt entity • Large operating companies • Subsidiaries of certain exempt entities • Inactive entities |
If you believe one of these exceptions covers your business, take caution. In many cases, the names of these exemptions are misleading. For example, a company that is now inactive but was active after January 1, 2020, is still considered an active entity for the sake of the reporting requirement and does not fall under the exemption of being an inactive entity. Given the steep penalties for non-compliance, you should consult with counsel before you forego reporting for your business.
What information needs to be reported?
The Business attorneys at Skufca Law can walk you through this process and create the report for you. Each report will include three categories of information: (1) information about the company; (2) information about the beneficial owners; (3) information about the company applicant.
Generally speaking, the information you need to supply is straight forward. For each category, you will need to provide the following information:
Information about the Reporting Company
- Legal name
- d/b/a
- Principal place of business if that address is in the United States
- Jurisdiction of formation or registration; and
- EIN
Information about the Beneficial Owners
- The individual’s name;
- Date of birth;
- Residential address; and
- An identifying number from a state issued ID (driver’s license or passport)
- Image of the identification document
Information about the Company Applicants (only due for entities created after January 1, 2024)
- Individual’s name;
- Date of birth;
- Address; and
- An identifying number from an acceptable identification document (passport; state issued ID)
- Image of the identification document
- If company applicant works for a business, the business’s address. Otherwise, the reporting company must report the company applicant’s residential address.
Who is a “beneficial owner” and “company applicant”?
While the information that needs to be reported is straight forward, determining who is a beneficial owner and who is a company applicant is far more nuanced and technical.
Beneficial Owner
A beneficial owner is a natural person (not another entity) who:(1) owns or controls at least 25% of your business’s ownership interests, or (2) exercises substantial control over the reporting company. It’s important to note that a beneficial owner might not be an owner at all under this definition if the individual has substantial control.
An individual is deemed to have substantial control if the individual:
- Is a senior officer (president, CFO, GC, CEO, COO, manager, etc),
- Has as authority to appoint or remove senior officers or a majority of directors of the reporting company,
- Is an important decision-maker for the reporting company if it directs, determines, or has substantial influence over a reporting company’s business, finances, and structure, or
- Has any other form of substantial control over the business.
There are many common scenarios that may make it difficult to identify all of the beneficial owners of your company. For example, your company may be wholly or partially owned by another entity or trust. Or maybe your company is managed by a management company. Remember, the attorneys at Skufca Law are here to help you navigate this complex landscape.
Company Applicant
A company applicant is a person who: (1) directly filed your company’s creation/registration documents, and the person who was primarily responsible for directing the filing. In any given situation, there will only be up to two applicants. For example, if your company’s president filled out and signed the Articles of Organization to create an LLC and the office assistant filed the document online, then the president and the office assistant would be company applicants.
Will this information be available to the public?
If you are concerned about providing this information, that is understandable and business owners across the country share your concern. Information provided to FinCEN will be stored on a secure database that is not available or accessible to the public. However, the reports will be accessible or made available to the following: (1) FinCEN, (2) U.S. Federal agencies engaged in security, state law enforcement upon obtaining court approval, (3) foreign governments who submit qualifying requests to FinCEN, and (3) financial institutions and regulators who have obtained your business’s consent.
When do I need to submit this report?
Companies that existed before January 1, 2024, have a full year to submit their report. The complete due date schedule is as follows:
| Entity Registration Date | Reporting Due Date |
| Before January 1, 2024 | January 1, 2025 |
| In 2024 | 90 days after filing date with the Secretary of State |
| On or after January 1, 2025 | 30 days after filing date with the Secretary of State |
Unlike Annual Reports, this report is due only once and then only when there is a change to the reported information. In such case, the updated report must be made no later than 30 days after the date of the changed information.
What are the penalties for non-compliance?
An important consideration as you take care to properly and timely file your report is the penalties for non-compliance. Given that FinCEN views this to be a matter of national financial security, the penalties are steep. Non-compliance will be subject to civil penalties of up to $500 per each day of noncompliance and criminal penalties of up to an additional $10,000.00 and 2 years in prison.
Conclusion
Understanding the complex definitions, requirements, and deadlines of Beneficial Ownership Information (BOI) reporting can be a formidable challenge for any business owner. The complexity of the requirements, coupled with steep penalties of $500/day and the continuously evolving nature of laws and regulations, creates an environment that demands careful attention.
At Skufca Law, our dedicated team of business attorneys recognizes the intricacies of these regulations. We have undertaken a comprehensive study of the current legal framework and are committed to staying ahead of every new development. By entrusting us with your business’s compliance, you can focus on running your business.
Contact the Skufca Law attorneys at (704) 376-3030 to assist in properly reporting your business to meet the Beneficial Ownership Information (BOI) requirement.