Required (BOI) Beneficial Ownership Information Reporting

BOI Business Registration

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Many companies are required to report information about the individuals who ultimately own or control them. Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company. In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This law creates a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.

As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation. As of the time of this publication, this amount is $591.

A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

The following agencies engaged in national security, intelligence, or law enforcement activity will have access to this information:

• State, local, and Tribal law enforcement agencies with court authorization;

• Officials at the Department of the Treasury;

• Foreign law enforcement agencies, judges, prosecutors, and other authorities that submit a request through a U.S. Federal agency to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement;

• Financial institutions with customer due diligence requirements under applicable law (in order to facilitate compliance with those requirements); and

• Federal functional regulators or other appropriate regulatory agencies that supervise or assess financial institutions with access to beneficial ownership information (in order to supervise such financial institutions’ compliance with customer due diligence requirements).
  

Beneficial ownership information reported is stored in a secure, non-public database using rigorous information security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security level. As of January 1st 2024:

• A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report.

• A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

• Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports.

Anyone a reporting company authorizes to act on its behalf—such as an employee, owner, or third-party service provider—may file a BOI report on the reporting company’s behalf. When submitting the BOI report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address. The person filing the BOI report, including a third-party service provider, must certify on behalf of the reporting company that the information is true, correct, and complete.

Companies required to report are called reporting companies. There are two types of reporting companies:

• Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.

• Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
  

There are 23 types of entities that are exempt from the reporting requirements:

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	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	Large operating company
22	Subsidiary of certain exempt entities
23	Inactive entity

A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests. Because beneficial owners must be individuals (i.e., natural persons), trusts, corporations, or other legal entities are not considered to be beneficial owners. However, in specific circumstances, information about an entity may be reported in lieu of information about a beneficial owner.

• An individual might be a beneficial owner through substantial control, ownership interests, or both. A reporting company can have multiple beneficial owners; there is no maximum number of beneficial owners who must be reported.

• Every reporting company will be substantially controlled by one or more individuals, and therefore that every reporting company will be able to identify and report at least one beneficial owner.
  

An individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control:

• The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function).

• The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.

• The individual is an important decision-maker for the reporting company.

• The individual has any other form of substantial control over the reporting company.

Accountants and lawyers generally do not qualify as beneficial owners, but that may depend on the work being performed. Accountants and lawyers who provide general accounting or legal services are not considered beneficial owners because ordinary, arms-length advisory or other third-party professional services to a reporting company are not considered to be “substantial control”. In addition, a lawyer or accountant who is designated as an agent of the reporting company may qualify for the “nominee, intermediary, custodian, or agent” exception from the beneficial owner definition. However, an individual who holds the position of general counsel in a reporting company is a “senior officer” of that company and is therefore a beneficial owner.

To qualify for the large operating company exemption, an entity must have more than 20 full time employees in the United States, must have filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5,000,000 in gross receipts or sales, and must have an operating presence at a physical office in the United States.

The term “operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity. The definition does not preclude residences from being such a physical office. However, the entity that qualifies for the relevant exemption must itself lease (or own) the physical location, regularly conduct business at that location, and the location must be physically distinct from the place of business of any other unaffiliated entity. Thus, if the company is run from a personal residence, the company must itself actually rent or own the space in the personal residence that it uses to qualify for the large operating company exemption.