The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently issued the Beneficial Ownership “Reporting Rule,” which will directly affect some small business entities. The new rule will go into effect on January 1, 2024. Over the next few weeks, the Foundry Law Group will present several blog posts that will inform you on: an overview of the new rule, who has to report under the new rule, and what information your company needs to report.

What Does the Reporting Rule Require?

The new Reporting Rule mandates that certain business entities file beneficial ownership information (BOI) reports to FinCEN. These reports are sometimes referred to as “BOI reports.” BIO reports are supposed to contain certain information about:

• The business entity that is reporting,
• The company’s “beneficial owners,” and
• “Company applicants.”

A subsequent blog post will provide more precise details on what information a company should report. For now, please note that a “beneficial owner” is an individual who owns or controls at least 25% of the subject company or has substantial control over the company. Further, a “company applicant” is an individual who directly files or is primarily responsible for the filing of the document that creates or registers the company.

What Happens if a Company Is Owned by Another Company?

An immediate question many businesses have is what if they are owned by another entity? Do these companies have to disclose ownership of that entity?

The answer goes back to the concept of beneficial ownership. If the owner of a company is a “beneficial owner,” then a reporting company has to disclose ownership of that company.

For reporting purposes, a beneficial owner is any individual or entity that, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise either exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company.

Therefore, if an entity owns a reporting business and either has substantial control over that business or controls at least 25% of the business, then the business has to disclose ownership by the entity.

When should a business file a report?

FinCEN will start accepting reports on January 1, 2024. But please note the following:

• Reporting companies created or registered to do business before January 1, 2024 will have until January 1, 2025 to file their initial BOI reports.
• Reporting companies created or registered on or after January 1, 2024 will have 30 days after receiving notice of their company’s creation or registration to file their initial BOI reports.

What are the Penalties for Not Reporting?

The failure to meet reporting requirements can result in civil or criminal penalties. The willful failure to file a complete initial or updated report is subject to:

• A $500 per-day fine (up to $10,000), and
• Imprisonment for up to two years.

Are There Resources to Learn More?

Yes. We recommend the following:

• More information regarding the Reporting Rule can be found at fincen.gov/boi.
• FinCEN has issued some FAQs on specific issues and topics. You can find them here: fincen.gov/boi-faqs.
• Keep an eye out for additional blog posts from the Foundry Law Group that goes into more detail regarding the reporting requirements.

Still More Questions?

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