What’s Going On?

Businesses across the U.S. have a new federal filing requirement. The requirement is known as the “BOI report.” The Corporate Transparency Act (“CTA”) is now effective, and companies must now register with the Financial Crimes Enforcement Network (FinCEN). This filing requirement became effective January 2024.

Why I Might Care

This is a filing requirement for for-profit businesses (and for some, the first major federal compliance moment). Unless a business falls into one of the exemptions, it must file. Generally, business leaders and owners will be responsible for compliance. The CTA contains stiff penalties for individuals who fail to comply or fail to cause compliance.

This writing gives insight into 4 questions: 1. Who, generally, must file; 2. How to file; 3. By when to file; and 4. Penalties for failure to file or filing failures.

Some Deets

For people who have never heard of or need a refresher on the Financial Crimes Enforcement Network (FinCEN), it is a bureau of the U.S. Department of Treasury. Its mission, “safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.”

The CTA is embedded in the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”). The CTA is enforced by FinCEN. The CTA contains the new filing requirement known as the Beneficial Ownership Information (BOI) Reporting Rule – the BOI report. 

The BOI reporting rule requires businesses to file information regarding the entity itself, beneficial owners, and company applicants (I’ll provide definitions, below). The BIGGEST question is, “does this requirement apply to me?!” I am glad you asked. 

Businesses REQUIRED to report (known as a “reporting company”).

1. A reporting company is a business that meets the definition of reporting company AND does not qualify for an exemption.
2. “Reporting Company” means either (i) a domestic company that is a corporation or LLC, (ii) a domestic company that filed registration papers with the secretary of state (or similar office) or Indian tribe, or (iii) a foreign company that has registered with the secretary of state (or similar office) or Indian tribe to do business in the U.S. 

Businesses NOT required to report.

1. A company does not need to register if it is exempted.
2. Currently 23 exemptions exist: Securities Reporting Issuer; Government Authority; Bank; Credit Union; Depository Institution Holding Company; Money Services Business; Broker or Dealer in Securities; Securities Exchange or Clearing Agency; Other Exchange Act Registered Entity; Investment Company or Investment Adviser; Venture Capital Fund Adviser; Insurance Company; State-Licensed Insurance Producer; Commodity Exchange Act Registered Entity; Accounting Firm; Public Utility; Financial Market Utility; Pooled Investment Vehicle; Tax-Exempt Entity; Entity Assisting a Tax-Exempt Entity; Large Operating Company; Subsidiary of Certain Exempt Entities; and Inactive Entity.
3. A company must check the criteria for the exemption that it believes applies to determine the applicability of the exemption.

The next possible question, “how do we file?” Yet another great question. Filing occurs through FinCEN’s filing system. For quick access, CLICK HERE. The BOI report must be filed electronically (if unable to file electronically, you must contact FinCEN directly).

The final question, “what’s the deadline for filing?” You’re on fire. There are two different filing deadlines based on when a company came or comes into existence.

1. Established BEFORE January 1, 2024. If the company was established before January 1, 2024, the company currently has until January 1, 2025, to complete the filing.
2. Established ON OR AFTER January 1, 2024. If the company is established on or after January 1, 2024, the company currently must file within 90 days from the effective registration date of the company with the company’s respective state (think, the company registration with the Ohio Secretary of State was effective on January 2, 2024, BOI reporting must happen within 90 days from January 2, 2024).
3. Established ON OR AFTER January 1, 2025. If the company is established on or after January 1, 2025, the company currently must file within 30 days from the effective registration date of the company with the company’s respective state (think, the company registration with the Ohio Secretary of State is effective on January 2, 2025, BOI reporting must happen within 30 days from January 2, 2025).

Penalties do exist. If a reporting company does not register or registers inaccurate information, FinCEN will determine the level of penalty. Currently, penalties can be civil or criminal. Civil penalties can include $500/day for the duration of a violation. Criminal penalties can include up to 2 years in prison (I think we’re talking federal prison as this is a federal requirement, but I could be wrong) and/or up to a $10,000 fine. Additional penalties can apply to those who intentionally cause a company not to file the BOI report or to file fraudulent or incomplete information. This penalty can apply to senior leaders, beneficial owners, and company applicants.

As promised, here are relevant definitions for purposes of this writing. “Beneficial Owner” means “an individual who owns or controls at least 25 percent of a company or has substantial control over the company.” “Company Applicant” means “an individual who directly files or is primarily responsible for the filing of the document that creates or registers the company.”

What Do I Think?!

Uhh…this is going to be headache for my friends who already have their hands full with operating one or multiple companies. However, I don’t want to see anyone paying out unnecessary money or taking unexpected not-so-much vacations.

1. Start with identifying your effective company registration date. This will allow you to set your calendar, which is critical to avoiding missing your company’s potential reporting deadline. 
2. Next, determine whether your company must report. This can be done by reviewing FinCEN guidance, the federal law, and/or working with a consultant or attorney. 
3. If reporting is required, create a plan for (i) evaluating the data needed (this can be nuanced, so be very diligent in reviewing requirements, definitions, and law) and (ii) collecting and compiling all applicable data based on your reporting deadline. 
4. Then, file. But ensure you review the filing (even post filing) to ensure there are no inaccuracies. If you find any, don’t sweat. You have 90 days to file corrections. 
5. Finally, create a plan for ongoing compliance. If you’ve ever engaged in agency prosecution or investigation, you’ll remember that having solid policies and procedures in place can be a critical mitigating factor. Of course, from an operations perspective, maintaining a solid SOP assists with streamlining compliance and operational measures to ensure you don’t tie up ideation and productivity with clunky compliance efforts or worse, some unnecessary investigation or prosecution.