The Financial Crimes Enforcement Network (FinCEN) recently issued a new Beneficiary Ownership Reporting Rule, which will go into effect on January 1, 2024. The new rule is designed to help combat the use of shell corporations and other entities to facilitate money laundering and other illegal activities.
The Foundry Law Group began a three-part blog post series last week with a general overview of the new rule. This week we’ll focus on which business entities must comply with FinCEN’s rule. Our final post will examine what information a reporting company will have to disclose.
What Companies Are Subject to Reporting?
The new Beneficiary Ownership Reporting Rule mandates that certain business entities file beneficial ownership information (BOI) reports to FinCEN. These reports are sometimes referred to as “BOI reports.”
Under the new rule, a “reporting company” is a domestic or foreign corporation, limited liability company, or similar entity that:
- Was either formed or registered to do business in any state or jurisdiction by filing a document with a secretary of state, or other similar office, and
- Does not qualify for an exemption.
According to FinCEN projections, about 32.6 million companies will be subject to the new reporting rule when it goes into effect next year. Further, estimates predict that an additional 5 million entities will become subject to the new reporting rule each year thereafter.
What Companies Are Exempt?
There are 23 different types of businesses that are exempt from FinCEN’s reporting requirements. Most of the exempt companies are those already subject to substantial federal reporting requirements. Examples include:
- Public companies,
- Securities brokers and dealers,
- Insurance companies,
- Registered investment companies and advisors, and
- Pooled investment companies.
Also exempt are:
- Tax-exempt entities,
- Wholly owned subsidiaries of certain exempt companies,
- Inactive entities, and
- Large operating companies.
As to the latter, a “large operating company,” for purposes of this rule, is a company with all of the following:
- More than 20 full time employees,
- An operating presence in a physical office within the United States, and
- A filed federal income tax or information return in the U.S. for the previous year demonstrating more than U.S. $5 million in gross receipts or sales from U.S. sources.
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 go into more detail regarding the reporting requirements.
Still More Questions?
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