As we reported last month, beginning January 1, 2024, most US businesses will have to report information about their “beneficial owners” – that is, the individuals who actually own or control a company – to a US agency known as the Financial Crimes Enforcement Network (“FinCEN”).

This new reporting requirement is a result of the Corporate Transparency Act enacted by Congress in 2021.  The required report is called the “Beneficial Ownership Information Report” (“BOI Report”). The businesses required to file a BOI Report are called a “reporting company.” A separate BOI Report must be filed for each “beneficial owner” of a reporting company. The report will provide information about all individuals who directly or indirectly control or own a reporting company, whether a corporation, LLC, or limited partnership (and any other entity created by the filing of a document with the Secretary of State). One purpose of the BOI Report is to minimize opportunities to hide or benefit from ill-gotten income or to use ownership loopholes to avoid reporting income to the federal (and state) government.

The definition of a “beneficial owner” for whom a report must be filed is both broad and complicated.  A “beneficial owner” is an individual who meets at least one of two criteria:
(1) the individual exercises substantial control over the company; or
(2) the individual owns or controls at least 25% of the ownership interests of the company (“Beneficial Owner”).

While FinCEN has not yet identified exactly which positions within a company are considered a Beneficial Owner, it is likely to include officers, directors, and any other individual who can vote on or otherwise influence decisions regarding the business or transactions involving the business. Currently, under the tentative FinCEN regulations regarding BOI Reports, there are five exceptions to the definition of a Beneficial Owner:

1. A minor child, provided that a parent or guardian’s information is reported;
2. An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
3. An individual acting solely as an employee of a reporting company in specified circumstances;
4. An individual whose only interest in a reporting company is a future interest through a right of inheritance; and
5. A creditor of a reporting company.

Every US business must file a BOI Report for each Beneficial Owner unless the business qualifies for an exemption. Currently, there are 23 listed exemptions:

1. Tax-exempt entity
2. Entity assisting a tax-exempt entity
3. Insurance company
4. State licensed insurance producer
5. Bank
6. Credit Union
7. Accounting firm
8. Public utility
9. Broker or dealer in securities
10. Financial market utility
11. Pooled investment vehicle
12. Depository institution holding company
13. Money services business
14. Securities exchange or clearing agency
15. Securities reporting issuer
16. Other Exchange Act registered entity
17. Investment company or investment adviser
18. Venture capital fund advisor
19. Commodity Exchange Act registered entity
20. Governmental authority
21. Large operating entity, defined as an entity that:
    • Employs more than 20 full time employees in the US;
    • Has an operating presence as a physical office in the US; and
    • Filed a Federal income tax or information return in the US for the previous year showing more than $5 million in gross receipts.
22. Subsidiary of certain exempt entities
23. Inactive entity, defined as an entity that:
    • Was in existence on or before 1/1/20;
    • Is not engaged in active business;
    • Is not owned by a foreign person, whether directly, indirectly, wholly or partially;
    • Has not experienced any change in ownership in the preceding 12-month period;
    • Has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period; and
    • Does not otherwise hold any kind or type of assets, whether in the US or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.