New Corporate Transparency Rules Require Attention to Details

Starting Jan. 1, most businesses must report information about beneficial owners—those who own at least 25% of a company or exercise significant control over it—to the Treasury Department.

While the idea of such requirements may seem daunting, preparing for the new reporting will ensure a smooth filing for businesses in 2024 and beyond.

The idea is simple: Entities doing business in the US must report basic personal information on their beneficial owners to the Financial Crimes Enforcement Network, known as FinCEN. But determination of entities required to report, information required to be reported, and timing of the reports are nuanced.

Who Must Report

Treasury is collecting beneficial ownership information, or BOI, from “reporting companies,” which are US corporations, limited liability companies, and other entities formed in the US, as well as foreign companies registered to do business in any US state.

Individuals are considered as having beneficial ownership of a reporting company if they are a senior officer, have authority to appoint or remove certain officers or a majority of directors, are an important decision-maker, or have any other form of substantial control.

However, 23 types of entities are exempt from reporting requirements.

Some include large operating companies, defined as an entity with more than 20 full-time employees in the US, with an operating presence in the US, which reported to the IRS more than $5 million in gross receipts or sales for the previous year, excluding gross receipts or sales from sources outside the US.

Other exempt entities include banks, registered broker/dealers, investment companies, accounting firms, tax-exempt entities (such as nonprofits), and inactive entities. This means that even entities such as single-member LLCs could be required to file a BOI report if it doesn’t fall under an exemption. The FinCEN webpage has a full list of exempt entities.

When to Report

Reporting can begin anytime after Jan. 1. Entities formed before this date will have until Dec. 31, 2024 to submit their BOI report to FinCEN. Entities formed between Jan. 1 and Dec. 31 will have 90 days from the date of formation to submit their report.

Entities formed after Jan. 1, 2025 will have 30 days from the date of formation to submit a report. Once a report has been submitted, the reporting company must continue making any necessary updates to their report on an ongoing basis.

The willful failure to report complete or updated BOI may result in civil or criminal penalties, and senior officers of a reporting company that fails to file a required BOI report may be held accountable for such failure. There is no fee to submit a report.

What to Report

The reporting company must provide its legal name, state of formation, current US address, and its taxpayer or employer identification number.

Each beneficial owner and company applicant (either the individual who filed the entity formation or the individual who directly controlled the entity formation filing) of the reporting company must provide their name, date of birth, address, and a copy of either a US passport, driver’s license, state issued identification, or foreign passport.

Four rules affect what information a reporting company may need to submit:

If the reporting company is owned by an entity that’s exempt from the requirements, it must only report the names of the exempt entities instead of information about the individual who is a beneficial owner
If a beneficial owner is a minor child, only the minor’s legal parent/guardian’s information must be reported
If the reporting company was formed under the laws of a foreign country and is a pooled investment vehicle, it must report only one individual who exercises substantial control over the company
Only reporting companies formed after Jan. 1 must report company applicants

How to Prepare

Entities that don’t qualify for an exemption should obtain the key information required for each beneficial owner, including obtaining a copy of the identification document for each beneficial owner.

Business owners with dormant or unnecessary entities, which wouldn’t be exempt under the reporting requirements, should consider dissolving such entities to avoid unnecessary reporting obligations.

Conversely, business owners considering forming a new entity that would fall under the reporting obligations should consider forming such new entity by Dec. 31 to avoid accelerated and expanded reporting requirements.

While reporting companies can submit their BOI reports on their own, knowledgeable attorneys and accountants are able to work with the entities to complete and file the reports on their behalf. Reporting companies should set reminders throughout the year to update their BOI with FinCEN, if applicable.

Exempt entities should keep in mind that if their circumstances change, they may trigger a future filing requirement. Business owners must always keep this new beneficial ownership information reporting requirement in the back of their minds from this day forward.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jill Braunstein is partner at Abrams Fensterman and member of its corporate and securities law practice group in Lake Success, N.Y.

Ashley Cohen is an associate at Abrams Fensterman and member of its corporate and securities law group.