Under the Corporate Transparency Act (CTA), millions of companies that are registered to do business in the United States are now required to submit a report containing beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). More than 32 million existing companies and an estimated 5 million new businesses formed yearly are expected to be impacted by the federal compliance requirement.
For business owners and the professionals who assist them with compliance, it is crucial to understand the specifics of the compliance requirements. This knowledge can help them avoid the serious civil and criminal penalties of failing to comply with the regulations.
Parasec has compiled a Frequently Asked Questions (FAQs) section to help our clients navigate this compliance requirement. Additionally, we have created an informational sheet to help reporting companies identify who qualifies as a beneficial owner (find it here). You can also access our BOI Filings Prep Checklist here. Compiling the documents you need for your BOI filing(s) before you start can help streamline the process. Use our BOI filing prep checklist to help you prepare for this new compliance requirement.
Additonally, the Trusts & BOI Reports document we’ve created outlines key considerations for trusts under the CTA.
What companies are required to file a BOI report with FinCEN?
Companies that are required to report are called “reporting companies.” FinCEN identifies two types of reporting companies:
- 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.
For those impacted, the rule breaks down reporting companies into two categories: Those formed before January 1, 2024, and those formed after December 31, 2023. While both types are subject to reporting requirements, the information that needs to be submitted varies slightly depending on the category.
If my entity is registered in one state and qualified to do business in other states do I need to file a BOI for each state where it operates?
No. Authorizing a foreign reporting company (already registered under the laws of one state or tribe) to do business under the laws of another state or tribe does not necessitate the filing of additional BOIRs.
Are there any exemptions?
There are 23 types of entities that are exempt from the beneficial ownership information reporting requirements. Those exempt entities are primarily those already more heavily regulated (i.e. financial institutions, public utilities, charities, accounting firms, etc.). Additionally, large reporting companies—those with over 20 full-time employees (in the U.S.) and with $5 million in gross receipts for the prior year—are also exempt. Finally, any entity that is not actively engaged in business, that does not own a subsidiary entity, and has not sent or received funds over $1,000 is also exempt. It’s important to carefully review the criteria before making the determination your company is exempt.
Please note: Most early-stage and newly formed companies are likely to be reporting companies, as they are unlikely to meet any of the exemptions within the first 90 days of forming.
What has to be reported?
For reporting companies created before January 1, 2024, the beneficial ownership information (BOI) report must include information on the reporting company itself as well as the beneficial owners of the entity.
Reporting companies created on or after January 1, 2024 must also include information about the company applicants.
What information about the reporting company must be supplied?
Reporting companies must provide all of the information below:
(1) The reporting company’s full legal name;
(2) Any trade names or “doing business as” names of the reporting company;
(3) A complete current address consisting of:
(a) the reporting company’s principal place of business in the United States; or
(b) in all other cases, the street address of the primary location in the United States where the reporting company conducts business;
(4) The State, Tribal, or foreign jurisdiction of formation of the reporting company;
(5) For a foreign reporting company, the State or Tribal jurisdiction where such company first registers; and
(6) The Internal Revenue Service Taxpayer Identification Number (TIN) of the reporting company, or for foreign reporting companies that have not been issued a TIN, a foreign tax identification number and the name of the relevant jurisdiction.
Who is a beneficial owner of a reporting company?
Under the rule, a beneficial owner includes any individual who, directly or indirectly, (1) exercises “substantial control” over a reporting company, and/or (2) owns or controls at least 25 percent of the ownership interest of a reporting company.
The final rule clarifies in more detail the terms “substantial control” and “ownership interest.” Essentially, the rule captures anyone who can direct, determine, have substantial influence, or make important decisions on behalf of the entity. A reporting company may have only one beneficial owner or it could have multiple beneficial owners. Parasec has created an informational sheet to help reporting companies determine who qualifies as a beneficial owner. Find it here.
What information on the beneficial owners must be supplied?
For each beneficial owner, the following information must be reported on:
(1) Full legal name;
(2) Date of birth;
(3) A complete current address consisting of:
(3a) the individual’s residential street address; or
(3b) in the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business;
(4) A unique identifying number from an acceptable identification document defined as:
(4a) a non-expired U.S. passport;
(4b) a non-expired identification document issued by a state, local government or Indian tribe;
(4c) a non-expired driver’s license issued by a state; or
(4d) if the individual does not possess any of the aforementioned documents, a non-expired foreign passport.
(5) An image of the document the unique identifying number came from.
Who is a company applicant?
FinCEN defines company applicants as:
- The individual who directly files the document that creates or registers the company; and
- If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
While the number of company applicants per reporting company will be limited to two or less, there is still some debate as to who to name if more than two people are involved in the formation/registration process. FinCEN has updated its definition to include a few scenarios that may be helpful when determining who is a company applicant. Below are three of the scenarios they have laid out:
Scenario 1: Consider an attorney who completes a company creation document using information provided by a client, and then sends the document to a corporate service provider for filing with a secretary of state. In this example:
- The attorney is the company applicant who is primarily responsible for directing or controlling the filing because they prepared the creation document and directed the corporate service provider to file it.
- The individual at the corporate service provider is the company applicant who directly filed the document with the secretary of state.
Scenario 2: If the attorney instructs a paralegal to complete the preparation of the creation document, rather than doing so themself, before directing the corporate service provider to file the document, the outcome remains the same: the attorney and the individual at the corporate service provider who files the document are company applicants. The paralegal is not a company applicant because the attorney played a greater role than the paralegal in making substantive decisions about the filing of the document.
Scenario 3: If the client who initiated the company creation directly asks the corporate service provider to file the document to create the company, then the client is primarily responsible for directing or controlling the filing, and the client should be reported as a company applicant, along with the individual at the corporate service provider who files the document.
For more on company applicants, visit Section E of FinCEN’s FAQs.
Again, only reporting companies created or registered on or after January 1, 2024, will need to report on their company applicants.
What information about the company applicants must be provided?
For each company applicant (and there can be up to two), the following information must be provided:
(1) Full legal name;
(2) Date of birth;
(3) A complete current address consisting of:
(3a) the individual’s residential street address; or
(3b) in the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business;
(4) A unique identifying number from an acceptable identification document defined as:
(4a) a non-expired U.S. passport;
(4b) a non-expired identification document issued by a state, local government or Indian tribe;
(4c) a non-expired driver’s license issued by a state; or
(4d) if the individual does not possess any of the aforementioned documents, a non-expired foreign passport.
(5) An image of the document the unique identifying number came from.
When is the initial report due?
Any domestic or foreign reporting company created before January 1, 2024, must file a report no later than January 1, 2025. That said, they can file any time before that deadline. Meaning any existing entities will have a full year to file.
Any domestic or foreign reporting company created on or after January 1, 2024, must file an initial report within 90 calendar days of filing their registration or formation.
Any domestic or foreign reporting company created on or after January 1, 2025, must file an initial report within 30 calendar days of filing their registration or formation.
Need to update information?
A report must be updated when there is “any change to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners.” Reporting companies will have 30 days to report changes to the information in their previously filed reports. FinCEN has simplified this process by no longer requiring company applicant information to be updated.
What if a reporting company later becomes exempt?
If a reporting company that filed a BOI report later becomes exempt, the company should then file an updated report indicating its newly exempt status.
Need to make a correction?
The final rule provides a 90-day safe harbor if inaccurate or incomplete information is filed. Reporting companies can submit a correction (no later than 90 days after the original report) to prevent civil or criminal liability.
What are the penalties for violations?
The penalties for reporting companies who fail to comply may include:
- civil penalties up to $500 per day until the violation is corrected;
- and a criminal fine of up to $10,000
- and/or up to two years in prison.
Who can view your BOI filing information:
Beneficial ownership information is not housed in a publicly accessible registry. FinCEN will be responsible for storing the information in a secure database. Unless you are with a law enforcement agency, you cannot access this data. That said, financial institutions may gain access to specific information with authorization from the reporting company.
Can Parasec assist with my BOI filing(s)?
Parasec has developed a user-friendly BOI report filing platform to help ensure that we collect all the necessary data required to complete your order and meet filing requirements. Read on for more on the benefits of enlisting our help and utilizing our system. To learn more visit our Beneficial Ownership Information (BOI) Reports page. If you’re ready to submit your BOI report, our team is here to assist you! Please send an email to our BOI Report specialists at BOI@parasec.com to get started.
Please note: These FAQs are not intended to provide legal advice and should not be relied upon as such. We suggest speaking with your legal and tax professionals before deciding if the CTA will impact you and your business.
Please visit FinCEN’s website for additional guidance materials.