Be Mindful of Your Beneficial Ownership Information Reporting Requirements

Written By:
Zachary J. Montgomery, JD, CPA, CFE
Partner & CFO
Published On: 
January 29, 2024
info@providentfp.com

In 2021, Congress passed the Corporate Transparency Act, which created a new beneficial ownership information (“BOI”) reporting requirement for certain companies. These companies must report the requested information to the Financial Crimes Enforcement Network (“FinCEN”), which is a bureau of the U.S. Department of the Treasury. Below is a high-level summary of the companies who may be affected, the requested information, the reporting deadlines, and the potential penalties for non-compliance.

Who Is Affected?

Generally speaking, an entity or company is required to report its BOI if it (1) is a “reporting company,” and (2) does not qualify for an exemption. Reporting companies may be either domestic or foreign as described in detail below:

·     Domestic reporting companies – 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 – 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.[1]

For those individuals that established corporations or LLCs in the state of Texas, they may be required to report their company’s BOI (provided an exemption does not apply). There are 23 types of entities exempt from the BOI reporting requirements, including: banks, credit unions, brokers/dealers in securities, insurance companies, accounting firms, tax-exempt entities, governmental authorities, and large operating companies.[2] For purposes of the exemption, a “large operating company” is one that employs more than 20 full-time employees in the United States.

 

What Needs to Be Reported?

A reporting company must report the “beneficial owners” of the company—that is, identifying information about the individuals who directly or indirectly own or control the company. More specifically, 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.[3] An individual may exercise “substantial control” over the reporting company if:

·     The individual is a senior officer (e.g., CEO, CFO, general counsel);

·     The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;

·     The individual is an important decision-maker for the reporting company; or

·     The individual has any other form of substantial control over the reporting company.[4]

Separately, an individual owners or controls at least 25% if the reporting company’s ownership interests even if such interests take the following form:

·     Equity, stock, or voting rights;

·     Capital or profit interests;

·     Convertible instruments;

·     Options or privileges; or

·     Any other instrument, arrangement, or relationship used to establish ownership.[5]

Additionally, for reporting companies created on or after January 1, 2024, a reporting company may also need to report its “company applicant.” The “company applicant” is the individual (or individuals) responsible for directing or filing the registration document(s) for the reporting company with the secretary of state (or similar office).

When Is the Information Due?

BOI reports should not be misunderstood as a new annual filing. Reporting companies must initially report their BOI; however, such reporting companies don’t need to report their BOI again in the future unless there is a change or error in the information originally reported.

With that said, reporting companies must report their BOI depending on when the company was (or is) created or registered: 

·     A reporting company created before January 1, 2024, has until January 1, 2025, to file its initial BOI report;

·     A reporting company created on January 1, 2024, but before January 1, 2025, has 90 calendar days after receiving notice of the company’s creation/registration to file its initial BOI report;

·     A reporting company created on or after January 1, 2025, has 30 calendar days after receiving notice of the company’s creation/registration to file its initial BOI report.[6]

What Are the Potential Penalties for Non-Compliance?

According to the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may face both civil and criminal penalties. Specifically, a person in violation (e.g., one who willfully fails to file a BOI report, one who willfully files false BOI, one who willfully fails to correct/update previously reported BOI) may face civil penalties in the amount of $591.00 per day so long as the violation continues (capped at $10,000.00). Additionally, a person may also face up to two years imprisonment and a fine of up to $10,000.00.

 

Conclusion

FinCEN has published many resources on its website (https://www.fincen.gov/boi) to address multiple questions associated with BOI reporting obligations. This website is also where reporting companies may file their respective BOI reports. Small business owners should take the time to review their individual businesses/companies and understand their reporting obligations.

At Provident Financial Planning, our JD, CPA, CFP® team is here to guide you through new reporting developments. Schedule an appointment with us today over Zoom or in any of our offices in Southlake, Plano, Dallas, Houston, or Atlanta. Our team can help you implement a financial strategy tailored to you.

Keywords: small business, business reporting, Corporate Transparency Act, BOI, beneficial ownership, shell company

[1] See Beneficial Ownership Information Reporting, FINCEN, available at https://www.fincen.gov/boi-faqs#C_1.

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

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Written By:
Zachary J. Montgomery, JD, CPA, CFE
Partner & CFO
Published On: 
January 29, 2024
info@providentfp.com
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