What is FinCEN?
On January 1, 2024, companies are required to report information to the U.S. Government about who owns and controls the business. This rule was promulgated by Congress in 2021 through the Corporate Transparency Act. This Act was created because of “Government efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures” (FinCEN). A corporation, a limited liability company (LLC), or other entity structures that were otherwise created in the US by filing a document with a secretary of state or any similar office under the law of a state or native tribe will need to report the business’ Beneficial Owners and the Company Applicant (if the company was created after January 1, 2024). Companies that have been formed prior to January 1, 2024, will have until January 1, 2025, to report the required information. If the company was formed after January 1, 2024, the company will have 90 days to report this information.
What is BOI?
A Beneficial Owner is any individual who owns or controls 25% of a company or has substantial control over the company. For the purposes of this Act, “Substantial Control” includes individuals who are Senior Officers, have appointment or removal authority, are deemed an important decision maker, or any other individual with substantial control. It is important to note that a Senior Officer who does not own 25% or more of the company will be deemed a Beneficial Owner and will need to be on the FinCEN Beneficial Ownership Information (“BOI”) report.
A Company Applicant is broken into two categories. The first and required category is the Direct Filer. The Direct Filer is an Individual who directly filed the document that created the company. The second category is any individual who was primarily responsible for directing or controlling the filing of the company. However, a company that was formed prior to January 1, 2024, will not need to include a Company Applicant on their BOI report.
The information that is needed for the BOI report is the full legal name, any trade name, DBA, or assumed name, the complete address of the business, and the company’s Employer Identification Number (“EIN”), or Social Security Number if the company does not have an EIN. For the Beneficial Owner(s) and Company Applicant(s), the following information of the individual must be included: full legal name, date of birth, current address, and the number and an image of a passport, driver’s license (front and back), or other identification document issued by a state, local government, or tribe.
With any government regulation, there are often exceptions. This is no different. There are 23 company types that are exempt, these companies include those in financial services, along with inactive entities. The full list can be found on FinCEN’s website.
What Does This Mean for My Business?
If a company does not report this information, it could face civil penalties of up to $500 each day the violation continues or criminal penalties, including imprisonment for up to two years and/or a fine of $10,000. Further, if any individual willfully causes a company not to file the required report or provides knowingly incomplete or false information, they may be subject to civil and/or criminal penalties.
With the potential penalties being costly, the reporter should ensure the information provided is accurate. However, if it is not, and an error is discovered, it is okay. Once the error or inaccuracy is discovered, the company will have 30 days to correct the mistake. This applies to both the company information and the individual’s information. Additionally, if information changes, including but not limited to a new DBA, Ownership changes, or the death of a Beneficial Owner, require an update to the report. When there are changes to the company, it has 30 days to update its report.
**This information should not be considered legal advice. Please consult your attorney for legal advice.**
For more information on the BOI report, please visit https://www.fincen.gov/boi
North Star Law Group is prepared to assist you with your business and compliance needs. Reach out to our Business Law team or give us a call. (651) 330-9678
