Disclosures of Beneficial Owners of Domestic and Foreign Business Entities: Uncle Sam Wants To Know You!
As of January 1, 2024, the United States Treasury Department, through its Financial Crimes Enforcement Network (“FinCEN”) requires all business entities such as corporations, LLC’s and LLPs to submit personal identifying information about their company owners. This collection of data, known as Beneficial Owner Information Reporting (“BOIR”), pertains to individuals who directly or indirectly own or control at least 25% ownership interest in a company or who exercise substantial control over a company.
The BOIR requirement comes as a result of the Corporate Transparency Act (“CTA”) passed by Congress in 2021. The legislative intent is to make it difficult for bad actors to hide or benefit from their ill-gotten gains through shell companies or other cloaked ownership structures. All BOI reporting will be kept in a database that is not available to the public but is accessible to federal, state, local, and native tribal officials, as well as certain foreign officials, for authorized activities related to national security, intelligence, and law enforcement.
Under the CTA, reporting companies are all domestic business entities whose formation is predicated on registration with the Secretary of State (such as corporations, limited liability companies, and limited liability partnerships) and all foreign business entities registered to do business in any state.
Some kinds of entities are exempt from reporting, mostly because they are already subject to other reporting requirements. Exempt entities are mostly money servicing entities such as banks, accounting firms, credit unions, insurance companies, and broker/dealers in securities. There is also an exemption for large entities, defined as those that have 20 or more employees and more than $5 million in annual gross A full list of exempt entities is available on the FinCEN website.
For 2024, new domestic entities formed on or after January 1, 2024, and foreign companies registering to do business in the United States for the first time on or after January 1, 2024, will be required to report their beneficial owners to FinCEN 90 days after receiving notice of their company’s creation or registration. In 2025 and thereafter, new companies will have 30 days from the date of operation or registration. Business entities whose formation predates 2024 will have until January 1, 2025, to make their first BOIR.
Each reporting company will have to provide the name, date of birth, address, and a photo of a non-expired driver’s license or passport, showing its unique identifier number, of its beneficial owners. Similar information is required for the company applicant, that is, the person that files a BOI report on behalf of a reporting company.
Failure to complete an initial or updated BOIR, or the attempt to report falsely, may result in civil penalties or up to $500 for each day the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.
It is important to reiterate that CTA is on the federal level, but New York State is not far behind. On December 22, 2023, Governor Hochul signed Senate Bill 995B/Assembly Bill 348A, effective December 22, 2024, enacting the New York LLC Transparency Act. Essentially, the same information is to be reported to the State of New York. However, even though the law has taken effect, as yet there is no mechanism for actually doing the reporting. We are all waiting for the state to release those details.
Finally, for those concerned about anonymity, it should also be noted that only 4 states allow outright anonymous LLC formation: Delaware, New Mexico, Wyoming, and Nevada.
This is not to be considered legal advice. Please reach out to an attorney for information regarding your specific situation.