The Countdown Begins: Key Takeaways from FinCEN’s New Ownership Disclosure Mandate for 2024

On September 18, 2023, the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury, released Beneficial Ownership Information Reporting Requirements Small Entity Compliance Guidance (“The Guidance”) to assist small entities in complying with the Beneficial Ownership Information (“BOI”) requirements, as required by the Corporate Transparency Act (“CTA”). Starting on January 1, 2024, BOI reports must be filed electronically using FinCEN’s secure filing system.

Here’s your guide to navigating these new rules.

Who Must Report?

The CTA requires U.S. and non-U.S. entities to report information about their beneficial owners — the persons who ultimately own or control the entities — to FinCEN.

There are two categories of Reporting Companies:

1. Domestic Reporting Companies: Includes Corporations and Limited Liability Companies (“LLC”) created under the laws of the United States (i.e., any State of the United States, the District of Columbia, or its territories) or any Indian Tribe.
2. Foreign Reporting Companies: Includes foreign companies registered to do business in a U.S. state or Tribal jurisdiction.

What Must be Reported?

Reporting Companies must report:

1. Their beneficial owners;
2. Any Company Applicant with respect to the Reporting Company.

Who is a beneficial owner of a company?

A beneficial owner is any individual who, directly or indirectly:

• Exercises substantial control over a reporting company; or
• Owns or controls at least 25 percent of the ownership interests of a Reporting Company.

For purposes of this section, an individual exercises “substantial control” over a Reporting Company if the individual meets any of the following four criteria:

• The individual is a Senior Officer who holds a position or exercises the authorities of a President, CFO, GC, CEO, COO, Manager (for LLCs), or any other officer or position with a similar function to an officer;
• The individual has the authority to appoint or remove certain officers or a majority of directors of the Reporting Company;
• The individual has important decision-making authority in relation to the Reporting Company, including decisions affecting the nature of the business, finances (sale, mortgages, lease, debts, compensation, etc.), and corporate structure (including reorganizations, mergers, dissolutions, amendments, etc.); and
• The individual has any other form of substantial control over the Reporting Company.

The 25% of control of the “Ownership Interest” test for a Reporting Company will take into account equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership. A Reporting Company may have multiple types of ownership interests.

Company Applicant

In addition, a Reporting Company must report its applicants when the Reporting Company is first registered to do business in the United States on or after January 1, 2024.

Types of Company Applicants:

• Direct Filer: This is the individual who directly filed the document that created a domestic Reporting Company or directly filed the document that first registered a foreign Reporting Company.
• Directs or controls the filing action: The individual primarily responsible for directing or controlling the filing of the creation or first registration document.

What information is required in the report?

The CTA requires a Reporting Company to file reports to identify the company’s owners and those who filed the documents creating or registering the company with the state. The information to be reported will be as follows:

Reporting Company

1. Full legal name;
2. Any trade name or “doing business as” (DBA)
3. Current U.S. address;
4. State or jurisdiction of formation;
5. Employer Identification Number (EIN)
   1. Foreign entities with no U.S. Tax ID report their foreign tax ID and the name of the foreign jurisdiction assigned the foreign tax ID.

Each Beneficial Owner and Company Applicant

1. Full legal name;
2. Date of birth;
3. Current address;
4. Copy of U.S passport, State driver’s license, Identification document issued by the state or local government;
5. Foreign passport.

When to file the Report?

• Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports.
• Reporting companies created or registered on or after January 1, 2024, will have 30 calendar days after receiving notice of their creation or registration to file their initial reports.

What are the Penalties?

The willful provision of or attempt to provide false or fraudulent BOI may result in civil or criminal penalties, including civil penalties of up to $500 per day for each day a violation has not been corrected and criminal penalties of $10,000, imprisonment of up to 2 years, or both. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.

Finally, if a person has reason to believe that a report filed with FinCEN contains inaccurate information and voluntarily submits a report correcting the information within 90 days of the deadline for the original report. In that case, the CTA creates a safe harbor from penalty.

What companies are exempted from the Report?

Finally, twenty-three types of entities are exempt from the reporting, many of which are already subject to substantial federal and/or state oversight. The Guidance provides a list of requirements for each entity type¹ that must be met to qualify for the exemption. Examples of entities that may be exempt from reporting include:

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 (more than 20 employees, $5M in gross receipts)
22. Subsidiary of certain exempt entities
23. Inactive entity

What happens if my information has changed after the report?

If there is any change to the required information about a company or its beneficial owners in a BOI report that the company filed, the company must file an updated BOI report no later than 30 days after the date on which the change occurred. The Reporting Company must report the following changes:

• Any change to the information reported for the Reporting Company, such as registering a new DBA.
• A change in beneficial owners, such as a new Chief Executive Officer, a share sale that changes who meets the ownership interest threshold of 25 percent, or the death of a beneficial owner.
• Any change to a beneficial owner’s name, address, or unique identifying number.

Individuals with a FinCEN identifier² must also report any changes to their name, address, or other relevant details within 30 days of the change.

When can we start reporting?

FinCen is still developing the electronic system that will be used to complete these reports, but this will not be available until January 1, 2024. No reports will be accepted before that date. Entities required to report can do so on or after January 1, 2024.

Entities that may qualify as reporting companies should take steps to understand their reporting requirements ahead of the commencement date on January 1, 2024. Do not hesitate to contact Marcum LLP for assistance in determining your reporting obligations and helping you to meet those obligations.

Sources

1. Companies under these classifications must comply with all the requirements listed on the Guidance to be eligible for the BOI exemption.
2. A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN.