Do You Need to Include Your Company Applicant in Your BOI Report Submission?

In 2021, the United States enacted the Corporate Transparency Act (CTA), mandating that US-registered companies disclose information on their beneficial owners. This legislation took effect on January 1, 2024, and its enforcement falls under the jurisdiction of the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department.

The BOI regulation aims to curb activities such as money laundering, tax evasion, terrorist financing, and other illicit operations. These crimes have been facilitated by the anonymity provided to the beneficial owners of corporations and LLCs, a practice that will be significantly hindered starting in 2024. The introduction of this law means that concealing illicit activities behind a business entity will become much more difficult.

As a result of this initiative to thwart illegal actions, almost every business owner in the US will now be obligated to report their beneficial owners. This requirement is likely to raise numerous concerns and questions among the business community.

Do You Need to Include Your Company Applicant in Your BOI Report Submission?

Understanding BOI Reporting Obligations: Who Is Required to Comply?

The primary inquiry revolves around which entities are obligated to disclose information on their beneficial owners. In essence, this requirement encompasses nearly all US-registered business entities, or “reporting companies,” with minimal exceptions. Reporting companies encompass corporations, LLCs, or any entities registered with the secretary of state, tribal authorities, or similar regulatory bodies. This mandate extends as well to foreign reporting companies that are registered to conduct business in the US.

There are 23 exemptions targeting entities likely already disclosing their beneficial ownership prior to the implementation of this regulation. These exemptions cover a range of organizations, including financial institutions, government entities, investment and insurance companies, public utilities, accounting firms, among others. It is improbable that these exemptions will affect small businesses, startups, or other LLCs and corporations significantly.

Key Compliance Reporting Essentials: Understanding the Requirements

The Financial Crimes Enforcement Network mandates the submission of specific details concerning the reporting entity as well as its beneficial owners. Initially, it’s essential to file a report containing information about the reporting company and its beneficial owners. Subsequently, it’s necessary to update this information as circumstances change. The required data for reporting companies encompasses:

  • The legal name of the reporting company.
  • Any alternate names under which the company operates (“doing business as”).
  • The primary street address or principal place of business, or alternatively, the street address of the business’s main location.
  • The jurisdiction (state, tribe, or foreign) where the company was established.
  • The jurisdiction (state or tribal) in which a foreign entity was registered.
  • The Taxpayer Identification Number (TIN) of the company.
  • For foreign entities, the TIN issued by a foreign jurisdiction, along with the jurisdiction’s name.

Regarding the disclosure of beneficial owners, the process is straightforward. All beneficial owners and company applicants must be documented. The necessary information for each includes:

  • The full legal name.
  • Date of birth.
  • Current residential address.
  • Identification documents, which can be any of the following: (i) passport, (ii) ID card issued by a state, local government, or Indian tribe, (iii) driver’s license, or (iv) passport issued by a foreign government.

Clarifying the Concept of Beneficial Ownership: Definitions and Obligations

A beneficial owner is defined as an individual who has significant influence over a reporting company, either through direct control or by owning a minimum of 25% of the company’s shares. The term “substantial control” can be somewhat vague; therefore, FinCEN has outlined criteria to help identify who might qualify as a beneficial owner:

  • Senior officers of the company.
  • Individuals with the power to appoint or dismiss senior officers.
  • Those who play a crucial role in making major decisions or exert a notable influence within the company.
  • Any other form of significant control within the company.

The number of beneficial owners can vary significantly from one company to another. It might range from a small group to a large cadre of individuals holding substantial interest or control. It is critical to recognize that only the current roster of beneficial owners needs to be reported. Any changes in beneficial ownership must be communicated to FinCEN in a timely manner.

Reporting Requirements for Company Applicants

Beyond beneficial owners, reporting entities are also mandated to disclose information about their company applicants. This requirement applies exclusively to companies established or registered on or after January 1, 2024. For entities formed before this date, there is no obligation to include company applicants in the Beneficial Ownership Information (BOI) report.

A company applicant is defined as the person(s) responsible for filing the paperwork to create or register the reporting company. In instances where multiple individuals are involved in the filing process, the company applicant is identified as the person who plays a primary role and is most directly involved in the company’s formation or registration. Typically, a company applicant could be a professional, such as a business lawyer or an accountant, who undertakes these responsibilities.

Understanding BOI Reporting Deadlines and the Involvement of Company Applicants

The timelines for submitting the Beneficial Ownership Information (BOI) report are determined by the date on which your business was established.

  • For businesses that were registered before January 1, 2024, the submission deadline for the BOI report is set for January 1, 2025.
  • Businesses that are registered between January 1, 2024, and before January 1, 2025, are given a 90-day window for reporting, starting from the date on which they receive notification, whether it’s an individual notice or a public notice issued by the secretary of state.
  • Companies that will be established on or after January 1, 2025, must submit their BOI report within 30 days following the receipt of notice.

Additionally, if there is a need to update or correct previously submitted information, companies are required to do so within 30 days from the date on which the change occurred.

Implications of Failing to Comply: Penalties Explained

The repercussions for non-compliance with the filing requirements are stringent, underscoring the importance of maintaining current and accurate information. Individuals who intentionally fail to report their beneficial ownership details face substantial penalties. These can include daily fines of up to $500 for each day the information remains unreported. Additionally, criminal sanctions may apply, including up to two years in prison and fines reaching $10,000.

Such penalties are applicable for actions including intentionally failing to file, knowingly submitting false information, and deliberately neglecting to report any updates regarding beneficial ownership. It is incumbent upon the reporting companies to ensure that the information they provide is both accurate and complete, as doing so aligns with their best interests.

Give Yourself Peace Of Mind & Contact Our Expert Tax Attorneys

Don’t face the new beneficial owner reporting rules alone, consult with our team of expert tax attorneys at Silver Law, PLC who have a deep understanding of CTA. We offer strategic counsel to ensure your corporate compliance and mitigate any potential challenges.

Take proactive steps to navigate the Corporate Transparency Act successfully – contact us today for assistance!

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