- Who is responsible?
- What are beneficial owners?
- What do the reports entail?
We’re glad you asked, read on for answers!
The Genesis of Reporting Obligations
Beginning January 1, 2024, companies will be subject to increased reporting requirements. Specifically, new regulations will require the reporting of information about company’s “beneficial owners” to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). These changes come from a final ruling based on the Corporate Transparency Act (CTA), an anti-money laundering statute designed to combat illegitimate financial activity and promote transparency.
Now, we have been told that corporations are “people”. Technically, they are “juridical persons.” In essence, the government wants information on “natural persons”, i.e., individual human beings who own and control these juridical persons.
A “beneficial owner” is an individual who ultimately runs or controls a company. However, beneficial ownership isn’t always obvious. Sometimes, obfuscation is intentional…and sometimes even unethical. (e.g., shell corporations used for money laundering operations or tax evasion schemes). Often, however, the absence of ownership information is merely the consequence of never having asked for it before. (For example, most US states do not require reporting of share registers.)
A beneficial owner may be an owner; alternatively, he or she may control the entity by other means (e.g., a side letter, proxy, or voting rights). FinCEN defines this as exercising “substantial control” over the reporting company, either directly or indirectly, or an individual who directly or indirectly controls 25 percent or more of the “ownership interest” of the reporting company.
Under the new CTA rules, Companies will be required to submit a Beneficial Ownership Information (BOI) Report. While the BOI reporting form has not yet been promulgated (as of the date of this blog posting), the BOI Report is expected to require detailed information about each of the beneficial owners of the company, including their names, birthdates, addresses, and other identifying information. Additionally, the report will require identifying information about the reporting company itself.
Who Must Report?
Any company, no matter how small, registered with a US state’s Secretary of State or equivalent state office—whether categorized as domestic reporting companies or foreign reporting companies—will be required to submit a BOI Report, unless said business falls into one of 22 exceptions (mostly comprising those entities already heavily regulated or tax-exempt). Reporting requirements cover a wide range of entities, including corporations, limited liability companies, and limited partnerships.
Reporting System and Deadlines
Businesses should submit BOI Reports online through FinCEN’s Beneficial Ownership Secure System (“BOSS”). BOSS is expected to open for business on January 1, 2024.
- Companies formed before January 1, 2024, will have to prepare and file those reports by January 1, 2025.
- Any company established after that date will have thirty (30) days after formal registration to file a BOI Report.
- Changes must be rectified with FinCEN within thirty (30) days of the effective date.
Consequences of Non-Compliance
Non-compliance may result in significant penalties for both companies and individuals.
- Willful failure to file a complete initial/updated report can lead to US$500/day fines (up to US$10,000) and/or up to two (2) years imprisonment.
- Knowingly disclosing BOI without authorization report can lead to US$500/day fines (up to US$250,000) and/or up to five (5) years imprisonment.
In many ways, these new reporting requirements benefit commerce. The disclosure of BOI fosters transparency and accountability and aims to deter unlawful financial activities.
We have survived COVID, my friends. We will also survive these new reporting requirements. Please let us know how we can support your efforts to comply!