2023 NEW GOVERNMENT REPORTING REQUIREMENTS
 

Who Is a Reporting Company?

Under the CTA, any foreign or domestic company that is considered a reporting company is required to provide company information and beneficial ownership information. A reporting company is broadly defined as any corporation, limited liability company, or similar entity that is created or registered to do business in the United States by filing documents with a secretary of state or a similar office of a U.S. state or tribal government. Twenty-three types of entities are exempt from the reporting requirements.[1]

Who Is a Beneficial Owner?

A beneficial owner is an individual who exercises “substantial control” over the reporting company, either directly or indirectly, or who owns or controls 25% or more of the reporting company’s ownership interests.

Substantial Control

The following individuals are deemed to exercise substantial control over a reporting company:

• A senior officer, such as the reporting company’s president, chief executive officer, chief financial officer, or other high-level officer.

• An individual with the authority to appoint or remove senior officers or a majority of the board of directors or similar body.

• An important decision-maker, more specifically, an individual who controls, directs, determines, or substantially influences important decisions regarding the reporting company’s business, finances, or structure.

• Any other person who exercises substantial control.

Ownership Interest

FinCEN guidance defines ownership interests to include equity, stock, or voting rights; capital or profit interests; convertible instruments; options or privileges; and any other “mechanism used to establish ownership.” An individual who acts as an intermediary, an agent, or a custodian for another may be considered to have indirect ownership.

What Information Must Be Reported?

Reporting companies are required to report beneficial ownership information as well as information about the company itself. Reporting companies formed on or after January 1, 2024, will also be required to provide information regarding their company applicants.

Reporting Company Information

Reporting companies must provide the following information about the company:

• The full legal name of the company;

• Any other trade names used by the company;

• The street address of the company’s principal place of business (a P.O. box number or third-party address will not be accepted);

  • A foreign company that does not have a principal place of business must report the address the company uses to conduct its business in the United States

• The jurisdiction in which the company was formed or registered; and

• An IRS issued Taxpayer Identification Number (TIN).

  • Foreign reporting companies without a TIN must report a tax identification number issued by a foreign jurisdiction and identify the issuing jurisdiction.

Beneficial Owner Information

Reporting companies must provide the following information about their beneficial owners:

• Full legal name;

• Date of birth;

• Current residential or business street address;

• A unique identifying number from a non-expired, government-issued photo ID, such as a U.S. passport or state driver’s license (a foreign passport will be accepted if no U.S. issued ID is available); and

• An image of the government-issued photo ID from which the number was provided.

Company Applicant Information

A reporting company that was created on or after January 1, 2024, must identify at least one, but no more than two, company applicants. Company applicants must be individuals, and the same information must be provided for company applicants as is required for beneficial owners.

There are two types of company applicants: a direct filer and an “individual who directs or controls the filing action.”

• A direct filer is the individual who physically or electronically filed the document that created a domestic reporting company or registered a foreign reporting company with the secretary of state.

• The “individual who directs or controls the filing action” is the individual who was primarily responsible for directing or controlling the document that created or registered the reporting company.

If a reporting company has one individual who directly filed the document and another individual who controlled or directed the filing, both individuals must be identified.

FinCEN Identifier

Reporting companies, beneficial owners, and company applicants will have the option to obtain a unique identifier from FinCEN. Individuals who apply for a FinCEN identifier must provide the same information that would be submitted for beneficial owners and company applicants. Reporting companies may report a FinCEN identifier in lieu of the required information about beneficial owners and company applicants. A reporting company may apply for a FinCEN identifier by checking a box on the BOI reporting form.

Filing the Report

Reporting companies will be able to file reports beginning January 1, 2024. Reporting companies in existence prior to January 1, 2024, must file their reports by January 1, 2025. Reporting companies created on or after January 1, 2024, will be required to file a report within 30 days of the earlier of the date of creation or registration with their governing jurisdiction. If there is a change to the reported information, reporting companies must submit updated reports reflecting such change within one year.

Reporting companies will be required to file their reports electronically through the beneficial ownership secure system (BOSS) created by FinCEN. The system will not be available until January 1, 2024. FinCEN has advised that further instructions and guidance on how to complete and file the BOI report form will be released in the future.

Penalties

Willfully providing false information or failing to report or update beneficial ownership information may result in significant penalties. The civil penalty for a violation is $500 per day, while criminal penalties include fines of up to $10,000, imprisonment for up to two years, or both. If a report is filed that contains inaccurate information and the reporting company did not have actual knowledge the information was incorrect, it will be given a 90-day safe harbor to submit an accurate report.

The CTA’s reporting requirements will impact many companies and will likely require a significant amount of information gathering and analysis. We recommend that you consult with your legal counsel to determine your reporting obligations.

[1] FinCEN identifies the following entities as exempt: securities reporting issuers; governmental authorities; banks; credit unions; depository institution holding companies; money services businesses; brokers or dealers in securities; securities exchange or clearing agencies; other Exchange Act registered entities; investment companies or investment advisers; venture capital fund advisers; insurance companies; state-licensed insurance producers; Commodity Exchange Act registered entities; accounting firms; public utilities; financial market utilities; pooled investment vehicles; tax-exempt entities; entities assisting a tax-exempt entity; large operating companies; subsidiaries of certain exempt entities, and inactive entities.