Frequently Asked Questions

Table of Contents

Introduction to Corporate Transparency Act and FinCEN reporting.

Beneficial ownership refers to persons who own 25% or more of a small business in the United States, or who have extensive control over the business, which means they may make important choices for the company. In the new Corporate Transparency Act, FinCEN requires reporting personal information about individuals who own or control a firm, whether directly or indirectly. These are termed Beneficial Ownership Information reports.

The Corporate Transparency Act was passed by Congress in 2021 as a result of bipartisan efforts. This Act creates a new need for businesses to disclose beneficial ownership information. The goal is to support the United States government’s commitment to make it more difficult for wrongdoers to conceal or profit from their illegal earnings using shell firms or complex ownership arrangements. The Corporate Transparency Act aims to create a secret database that the federal government can use to identify all individuals associated with a reporting corporation.

Filing a Corporate Transparency Act report. When, How, and Why

Companies will be required to begin reporting beneficial ownership information reports to FinCEN after January 1, 2024. FinCEN will not process any beneficial ownership information filings before January 1, 2024.

  • Companies founded or registered before January 1, 2024 have until January 1, 2025 to submit their initial beneficial ownership report.
  • Companies formed or registered between January 1, 2024 and January 1, 2025 must submit their initial BOI report within 90 days after getting notice. This 90-day period begins when the corporation is officially notified of its effective creation or registration, or when a secretary of state or similar office makes public notice, whichever occurs first.
  • Companies founded or registered after January 1, 2025 must file their initial BOI reports with FinCEN within 30 days of public notice of their effective formation or registration.
  • Companies must file updated reports whenever information about the firm or beneficial owner changes. These reports are submitted within 30 days of any changes.

Starting January 1, 2024, FinCEN will accept beneficial ownership information reports.

If your company welcomes you to BOI Agent, you will pay them for the filing service they offer.

If your firm invites you to FincenFetch, you will complete the report using the link they offer.

Reporting Company Rules for the Corporate Transparency Act

Yes, if a corporation is formed or registered to conduct business in a US territory and does not qualify for an exemption, it must declare beneficial ownership information to FinCEN. Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, and the United States Virgin Islands are among the territories under US jurisdiction. Virgin islands.

Companies that are required to report are referred to as “reporting companies.” If you do not have an exemption, your company is one. This covers LLCs, corporations, and any other entity formed by filing a document with a US jurisdiction. State.

There are various exemptions. The most common is the Exemption for Large Operating Companies. This exemption requires that your company have at least 21 full-time employees and $5 million in sales on your most recent business tax return. The remaining exemptions are more unusual and primarily apply to highly regulated companies.

There are two types of reporting companies:

  • Domestic reporting companies are corporations, limited liability companies, and other entities registered with a secretary of state or comparable office in the United States. Almost all small businesses in the United States are reporting companies.
  • Foreign Reporting Companies are businesses formed under foreign laws that have registered to conduct business in the US by filing documents with a secretary of state or similar office. Examples include corporations and limited liability companies.

23 separate categories of entities are exempt from disclosing beneficial ownership information. This comprises publicly traded firms that meet certain criteria, as well as a substantial number of nonprofits and operational organizations.

The following list offers an overview of the 23 exemptions:

  1. The most common is the Exemption for Large Operating Companies. This exemption requires that your company have at least 21 full-time employees and $5 million in sales on your most recent business tax return.
  2. Section 15(d) of the Securities Exchange Act of 1934 requires reporting issuers to file extra and periodic information.
  3. Company that exercises governmental authority on behalf of a state or tribe.
  4. Registered bank.
  5. Credit union has officially registered.
  6. Holding corporation for registered depository institutions.
  7. Registered financial services company.
  8. SEC-registered broker or dealer in securities.
  9. SEC-registered securities exchange or clearing agency.
  10. The company is registered under the Commodity Exchange Act.
  11. SEC-registered investment firm or investment adviser.
  12. SEC-registered venture capital fund advisor.
  13. Registered insurance firm.
  14. A state-licensed insurance producer.
  15. Commodity Exchange Act-registered entity.
  16. A registered accounting firm.
  17. Public utility company.
  18. The Financial Stability Oversight Council designated a financial market utilities firm.
  19. A pooled investment vehicle run by an SEC-registered person.
  20. Tax-exempt organization.
  21. Entity formed solely to provide financial aid or governance to a tax-exempt entity.
  22. Entity wholly owned by an exempt entity.
  23. Inactive entity founded before January 1, 2020 that has no assets, is not in operation, has no foreign owners, and has not sent or received money or changed ownership in the previous 12 months.

Before determining whether your company is exempt, thoroughly review the criteria connected with each exemption.

The status depends on the entity type and the way in which it was established.

  • To be considered a reporting corporation, a domestic entity, such as a statutory trust, business trust, or foundation, must first file a paperwork with a secretary of state or similar authority. Similarly, a foreign entity gains reporting status if it registers to do business in the United States by filing with a secretary of state or equivalent office.
  • State laws vary on whether certain entity types, such trusts, require filing with the secretary of state or similar office for creation or registration. For example:
    • If a trust is founded in a U.S. jurisdiction that requires filing, it will become a reporting business unless excluded.
    • Not all states need foreign entities to register with a secretary of state or comparable authority before conducting business in the state.
    • If a foreign entity files the required document to register for business in a state, it will become a reporting corporation unless an exemption exists.

Entities must also determine whether any exemptions to reporting requirements apply. For example, if a foundation is tax-exempt, it may not be required to report beneficial ownership information to FinCEN.

No, registering a trust with a court of law to establish the court’s jurisdiction over potential trust-related issues does not grant the trust reporting business status. If the trust is registered with the Secretary of State, it is probably a reporting corporation.

Beneficial Ownership Information under the Corporate Transparency Act

A beneficial owner is someone who, directly or indirectly:

  1. Exercises Substantial Control: Substantial control means that an individual may not own the entity, but they have the authority to make critical decisions for the reporting company. This alone qualifies them as a beneficial owner under FinCEN’s regulations. This includes serving as an officer, manager, having the authority to designate board members, selling or leasing large assets, entering into crucial contracts for the company, and making other important decisions.
  2. Any individual who owns or controls 25% or more of the ownership interests is considered a beneficial owner. This includes membership in an LLC, shares in a corporation, convertible notes and investment instruments, warrants, and any other type of ownership that imparts or can be converted into ownership. This is by individual, thus if an individual owns 10% directly and the remaining 30% through an LLC that invested in a reporting firm, they will exceed the 25% barrier and must be disclosed as a beneficial owner.

If ownership is disputed and no initial BOI report is made, notify all persons with major control over the firm, as well as those who hold or control at least 25% of the company’s stock. If you have an initial report, update it within 30 days of resolution.

Generally, disclose individuals who indirectly control the company or own 25% through the corporate body. Exceptions apply in circumstances involving exempt entities or the same beneficial owners.

An individual can exert significant control over four different channels. An individual is considered to have extensive control if they fall into any of the following categories:

  • Senior Officer Status: The individual is a company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or other similar capacity.
  • The individual has the authority to appoint or remove officers or directors in the reporting company.
  • The individual has a key decision-making position for the reporting company. This includes the capacity to sell or lease assets, enter into important contracts, and make high-level decisions for the reporting company.
  • Other Forms of Substantial Control: The individual has significant control over the reporting company via any other methods. You must list all individuals who have significant control over the reporting company.

An individual is an important decision-maker with significant control when they are involved in choices concerning any of the following:

  • Business Operations: Decisions affecting the company’s entire operations.
  • Decisions affecting the company’s financial activities, such as leasing, purchasing, selling, or disposing of assets.
  • Organizational Structure: Determines the reporting company’s framework and structure.

ANY person who advises, determines, or strongly influences these critical choices is regarded to have significant control over the reporting company.

Ownership interest is often defined as an agreement outlining ownership rights inside the reporting company. Examples of ownership interests include equity shares, stock, voting rights, and any other mechanism used to indicate ownership. When computing the 25% criterion to determine whether an individual is a beneficial owner, ALL forms of ownership must be considered.

There are five instances in which an individual who would normally be deemed a beneficial owner of a reporting company is eligible for an exception. These apply to minors, caretakers or nominees, non-officer personnel given to specialized functions, people with future ownership, such as inheritance, and creditors who can only achieve ownership through future debt collection. In certain cases, the reporting entity is not required to declare the individual as a beneficial owner to FinCEN.

Accountants and lawyers rarely meet the criteria for beneficial ownership. However, this decision may be dependent on the nature of their work. These people are frequently business candidates if they help set up the entity, which is discussed in a subsequent section.

  • Accountants and lawyers who offer broad accounting or legal services are typically not considered beneficial proprietors. This is because standard, arms-length advisory or other third-party professional services to a reporting company are not deemed to confer “substantial control.” Additionally, a lawyer or accountant designated as an agent of the reporting company may be eligible for the “nominee, intermediary, custodian, or agent” exception from the beneficial owner definition.
  • A reporting company’s “general counsel” is regarded a “senior officer” and so a beneficial owner.

When a beneficial owner exclusively owns or controls their ownership interests in a reporting company through multiple exempt entities, the reporting firm can supply FinCEN with the names of all of these exempt entities rather than the individual beneficial owner’s information.

It is crucial to highlight that this rule is not applicable if an individual owns or controls ownership interests in a reporting firm through a combination of exempt and non-exempt companies. In such cases, the reporting business must report the individual as a beneficial owner (unless an exception applies), although exempt firms are not required to be listed.

The unaffiliated firm cannot qualify as the reporting company’s beneficial owner since a beneficial owner must be an individual.

Individuals who have substantial control over the reporting company through the unaffiliated company must be reported as beneficial owners. However, individuals who have no influence over important decisions made by the reporting company and do not exercise substantial control may not be considered beneficial owners.

No, not necessarily. The reporting firm must evaluate each director individually to determine whether he or she fits any of these criteria.

The status depends on the conditions. A reporting company’s “partnership representative,” also known as a “tax matters partner,” is not automatically considered a beneficial owner. However, such an individual may qualify as a beneficial owner if they have substantial control over the reporting firm or hold or control at least 25% of the company’s ownership interests.

FinCEN’s new BOI reports include company application information.

The reporting obligation for business applicants only applies to reporting companies founded or registered on or after January 1, 2024. Companies founded previous to 2024 are not required to share their firm application information.

A corporation that is required to declare its company applicants will normally have up to two individuals who may qualify as company applicants.

  1. The individual who submits the papers that creates or registers the corporation.
  2. In circumstances where numerous individuals are involved in the filing process, the person who is largely responsible for directing or controlling the filing.

They will only submit up to two corporate candidates. Company applicants are always individuals, never companies.

Not every reporting corporation is required to reveal their company applications to FinCEN. The duty to report company applicants is only applicable to reporting companies created or registered to conduct business in the United States on or after January 1, 2024. Companies founded before 2024 are not required to notify their company applications.

The status of an accountant or lawyer as a business applicant is determined by their role in filing the document that establishes or registers the reporting company. Frequently, company applicants are associated with a business creation service or a legal practice.

An accountant or lawyer may be recognized as a company applicant if they submit the document that establishes or registers the reporting company. If numerous people are participating in the filing, an accountant or lawyer may be considered a corporate applicant if they are largely responsible for guiding or overseeing the process.

For example, an attorney in a law firm that specializes in business formation may be in charge of preparing and filing a reporting company’s incorporation forms. If a paralegal submits the documents directly at the attorney’s request, both the attorney and the paralegal are considered company applicants by the reporting firm.

Up to two people must be reported as company applicants: the person who files the registration document and the person who is principally responsible for guiding or controlling the filing based on decision-making power.

No, unless they played an additional part in the company’s formation or registration. The person at a corporation that requests courier services is the company applicant.

If the business merely supplies tools and no staff are directly involved, the corporate applicant is solely the person who files through the service.

No, a firm applicant cannot be removed from a BOI report simply because they no longer have a relationship with the reporting company. For reporting firms established on or after January 1, 2024, company applicant information must be included in the initial BOI report, with no modifications required if the relationship changes.

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Is your Company Exempt from Filing BOI Report?

There are certain conditions under which companies are allowed exemption from filing BOI reports. Our exemption checking tool will help you find whether or not your company qualifies for it.