The Corporate Transparency Act (CTA) of 2024 has introduced new rules that require entities, including LLCs, to report Beneficial Ownership Information (BOI). Effective from January 1, 2024, this legislation represents a significant stride toward promoting transparent and responsible business practices.
Key Summary
- BOI reporting for LLCs emphasizes transparency and accountability in business. It affects both existing and new companies.
- Existing LLCs have until January 1, 2025, to submit BOI reports. New LLCs must register within 90 days of formation.
- Identifying Beneficial Owners involves reporting those with at least 25% ownership or substantial control.
- Following BOI requirements before deadlines prevent penalties, enhances credibility, and simplifies operations.
Understanding the Corporate Transparency Act (CTA)
While some exemptions exist, most small and medium-sized businesses have to register and list their Beneficial Owners. This includes entities owned by non-US residents.
Deadlines and Reporting Requirements
Existing LLCs (Formed Before Jan 1, 2024)
Existing LLCs have a grace period, with a deadline for the initial BOI report set for January 1, 2025. This gives them plenty of time to gather and submit the needed info.
New LLCs (Formed On or After Jan 1, 2024)
Every new company has 90 days to register the Company and its Beneficial Owners with FinCEN. You also have to report the Company Applicants.
Advantages of Early Compliance
Penalty Prevention
- Companies greatly reduce the risk of fines and legal issues of late or missed filings by submitting the required reports on time.
- The penalties include civil penalties of up to $500 per day for each violation that continues, fines of up to $10,000 and potential imprisonment for up to 2 years.
- These penalties are imposed on companies that willfully provide false information or neglect to report their beneficial ownership information by the filing deadline.
Improved Credibility
- Early compliance demonstrates a commitment to transparency and accountability.
- It also fosters trust among financial institutions, clients, and business partners.
Operational Streamlining
- Early implementation of BOI reporting requirements allows businesses to streamline their operational processes effectively.
- Companies can avoid last-minute rushes by integrating compliance measures early on.
Categories of Beneficial Ownership Reporting
The legislation classifies reporting companies into two categories:
| Domestic Reporting Companies | Foreign Reporting Companies |
|---|---|
| These include corporations, LLCs, and other entities. They are established in the United States through paperwork filed with a secretary of state or a similar office. | They operate in the United States under foreign law. But, they are registered with a secretary of state or a similar office. |
Who is exempt from beneficial ownership requirements?
According to FINCEN, “23 types of entities are exempt from the beneficial ownership information reporting requirements.” These entities include publicly traded companies and must meet specified requirements. This group also includes many nonprofits and certain large operating companies.
Below is a table outlining these entities. But, companies should review the criteria carefully before concluding they are exempt.
| Exemption No. | Exemption Short Title |
|---|---|
| 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 |
| 22 | Subsidiary of certain exempt entities |
| 23 | Inactive entity |
Identifying Beneficial Owners
An important aspect of BOI compliance is the identification of Beneficial Owners. A Beneficial Owner is an individual who holds at least 25% ownership or exercises substantial control over the company.
Reporting Hierarchy
- Initial Reporting: Begin by reporting all owners with at least 25% ownership.
- Substantial Control Identification: Identify additional individuals with substantial control over the company. According to FinCEN, substantial control is determined by four criteria:
- the individual is a senior officer;
- the individual has the authority to appoint or remove certain officers or a majority of directors of the reporting company;
- the individual is an important decision-maker; or
- the individual has any other form of substantial control over the reporting company.
Understanding Substantial Control
FinCEN says there are no limits to the number of individuals who can be reported for exercising substantial control.
Individual Examples:
- If there are 5 owners, each with 20% ownership, and 2 of them make decisions for the company, while the other 3 watch, just report the 2. If there are additional Executive Officers report them as Beneficial Owners too.
- If all 5 sit on the Board but none can individually add or remove executive officers, and none have substantial control individually, only report the Executive Officers as Beneficial Owners.
- If all 5 are involved in the running of the company as partners or are executive officers then report them all as Beneficial Owners.
Corporate Examples:
If the Company is owned by foreign (or domestic) company(s), the Beneficial Owners would be whoever owns or benefits from them. The 25% rule trickles down – the official FinCEN guide explains this in detail. The Executive Officers of the Company should be reported too.
Reporting Process
To streamline the reporting process, LLCs must submit key information about their Beneficial Owners, such as names, addresses, and IDs. This information is submitted through FinCEN’s designated electronic filing platform. VALIS clients will receive step-by-step instructions from us to facilitate this process.
What are the BOI requirements for registration?
From The Business:
- Legal name of your business
- EIN and legal business address
- Your FinCEN ID number if you have one
- General information regarding the state where your entity was formed
From The Beneficial Owners:
- Full legal name
- Date of birth
- Home address
- Form of identification (like their passport)
You should get a FinCEN Individual ID if you have multiple companies. You can use it to identify yourself for each company without having to fill out all the information and upload your passport again.
Frequently Asked Questions
Who needs to file BOI?
All LLCs must file Beneficial Ownership Information (BOI) reports unless they are exempt under rules from FinCEN. This applies to both existing and new entities and includes those owned by non-US residents.
Will there be a fee for submitting a BOI report to FinCEN?
No fee is associated with submitting a BOI report to FinCEN.
Can anyone view the BOI?
No. FinCEN can share the BOI with six groups: U.S. federal agencies for security and law enforcement; local and Tribal law enforcement; foreign law enforcement, judges, and authorities; financial institutions for compliance checks; regulatory agencies overseeing financial institutions; and Treasury officers.
Who can file a BOI report on an owner’s behalf?
BOI reports can be filed by authorized individuals, including employees, owners, or third-party service providers.
Can individuals be penalized for violating BOI reporting requirements?
Yes. Individuals may face civil penalties of up to $500 per day for each violation. Criminal fines of up to $10,000 and imprisonment for two years are possible penalties for willful violations.
Where can I find instructions for the BOI registration process?
If you are a VALIS client, you will receive step-by-step instructions for the BOI registration process.
Final Thoughts
The 2024 BOI requirements impact both existing and new businesses. They emphasize transparency and accountability in the registration of LLCs. It is essential to adhere to deadlines, understand categories and exemptions, and accurately identify beneficial owners. These steps are key to ensuring compliance.
As businesses navigate the reporting process, embracing the new era of Beneficial Ownership Information becomes crucial for building trust and maintaining regulatory integrity in the business environment. Ready to start an LLC that complies with BOI requirements? Contact us today to get started.
