Beneficial Ownership Information Reporting

Starting in 2024, newly formed corporations, limited liability companies (LLCs), limited
partnerships, and other entities that file formation papers with a state’s Secretary of State’s
office (or similar government agency) must file a report with the U.S. Treasury Department’s
Financial Crimes Enforcement Network (FinCEN) providing specified information regarding the
entity’s “beneficial owners.” Entities in existence prior to January 1, 2024, have until January 1,
2025, to file these reports.

This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is
an attempt to look beyond shell companies that are set up to hide money. Unfortunately, this will
impose burdensome reporting requirements on most businesses, and the willful failure to report
information and timely update any changed information can result in significant fines of up to $500
per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000
and/or two years imprisonment. These penalties can be imposed against the beneficial owner, the
entity, and/or the person completing the report.

Beneficial owners are broadly defined and involve owners who directly or indirectly own more than
25% of the entity’s ownership interests or exercise substantial control over the reporting company
(even if they don’t actually have an ownership interest). While this may seem to only impact a few
significant owners, it can encompass many senior officers of the business as well as those
individuals who are involved in any significant business decisions (e.g., board members). Given the
severity of the fines, it may be safer to err on the side of over inclusion rather than under
inclusion.

For entities formed after 2023, information will also have to be provided about the company
applicants (the person who actually files the formation/registration papers and the person
primarily responsible for directing or controlling the filing of the documents).

The types of information that must be provided (and kept current) for these beneficial owners
include the owner’s legal name, residential address, date of birth, and unique identifier number
from a nonexpired passport, driver’s license, or state identification card. The entity will also
have to provide an image of any of these forms of documentation to FinCEN for all beneficial
owners.

Most entities must file these reports by January 1, 2025. However, entities formed in 2024 will have
90 days from the entity’s formation/registration effective date to file these reports. Reporting companies
created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice
that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.

Should any of the reported information change or a beneficial ownership interest be sold or
transferred, the entity must report this information within 30 days of the change or face the
potential of having the penalties described above imposed. Changes include reporting a beneficial
owner’s change of address or name, a new passport number when a passport is replaced or renewed, or
providing a copy of a renewed driver’s license.

It’s important that we meet soon to discuss who might be treated as a beneficial owner in your
business and what systems we can put in place to ensure that the information regarding these be
kept current. Please contact our office to schedule an appointment to discuss this further.