BOI Reporting Requirements 2024 – Do Reporting Companies Need to File?

FinCEN’s BOI Reporting Requirements 2024 Target Those Controlling Business Entities, Detailing Obligations for Domestic and Foreign Reporting Companies.

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BOI Reporting Requirements 2024

In an effort to enhance transparency and combat illicit financial activities, the Financial Crimes Enforcement Network (FinCEN)  has implemented new guidelines for reporting beneficial ownership information. The BOI Reporting Requirements 2024 aim to identify the individuals who ultimately control and benefit from certain business entities. This insight article will focus on who will need to comply with these regulations, shedding light on reporting companies, both domestic and foreign, and their obligations.

What Entities are Considered Reporting Companies?

Under the BOI reporting requirements 2024, reporting companies are obligated to disclose information about their beneficial owners and company applicants. Let’s take a closer look at who falls under the purview of these guidelines.

1. Domestic Companies

   Reporting companies include domestic corporations, limited liability companies (LLCs), and other entities created by filing documents with a secretary of state or similar office, in accordance with state or tribal laws. Sole proprietorships, certain types of trusts, and general partnerships are not considered reporting companies as they are not formed in the same manner. It’s worth noting that FinCEN does not provide a one-size-fits-all definition or a comprehensive list of qualifying offices for entity creation, considering the varying practices across states. However, additional guidance from FinCEN may be provided as deemed necessary.

2. Foreign Companies

   Foreign reporting companies are entities formed under the laws of a foreign country that are registered to conduct business in the U.S. by filing documents with a secretary of state or equivalent office, as per state or tribal laws. Like their domestic counterparts, foreign reporting companies are required to report information about their beneficial owners and company applicants.

Beneficial Owners

To determine who qualifies as a beneficial owner, at least one of the two of the following requirements must be met:

1. Ownership Interest

   An individual is considered a beneficial owner if they have a minimum ownership interest of at least 25% in the reporting company. This means that they directly or indirectly hold a significant share of the company.

2. Substantial Control

   In addition to ownership interest, an individual can also be classified as a beneficial owner if they exercise substantial control over the reporting company. FinCEN outlines three ways in which an individual can meet the substantial control requirement:

   • Senior Officer

     An individual serving as a senior officer of a reporting company, such as the president, chief executive officer, chief operating officer, chief financial officer, or individuals with similar functions.

   • Authority over Appointments

     An individual with the authority to appoint or remove any senior officer of the board of directors or a similar body within the reporting company.

   • Decision-Making Power

     An individual with the power to direct, determine, or substantially influence important decisions made by the reporting company.

There are five exceptions to the definition of beneficial owner that all reporting companies should consider. These exceptions are for:

1. Minor children

   If a beneficial owner is a minor child, the reporting company is not required to provide their information directly. Instead, the parent or guardian’s information should be reported on behalf of the minor child.

2. Nominees, intermediaries, custodians, or agents

   If an individual is acting as a nominee, intermediary, custodian, or agent on behalf of another individual, their information does not need to be reported. Instead, the information of the individual they are representing should be provided.

3. Employees

   An individual who is solely an employee of a reporting company, and whose ownership or control interest in the company arises solely from their employment status, is exempt from being reported as a beneficial owner.

4. Those with future interest through right of inheritance

   If an individual’s only interest in a reporting company is a future interest that arises solely through a right of inheritance, their information is not required to be reported as a beneficial owner.

5. Creditors

   An individual who is a creditor of a reporting company, meaning they have an ownership or control interest solely as a result of a loan or other extension of credit to the company, is exempt from being reported as a beneficial owner.

These exceptions recognize certain scenarios where the reporting of beneficial ownership information may not be necessary, ensuring that the reporting requirements are appropriately applied and reducing potential burdens.

Company Applicants

The term “company applicant” refers to individuals who directly file the document that creates the reporting entity or, in the case of a foreign reporting company, the individual who files the document to first register the entity for business in the United States. It also includes individuals primarily responsible for directing or controlling the filing of the relevant document by another party.

There can be up to two company applicants for each reporting company. Let’s look at some examples:

• Scenario 1: An attorney is creating a new company for a client, and the company will need to file a BOI report. The attorney solely prepares all of the documents to be filed with the applicable state or Tribal office. They file these documents (in person or through online method) with no one else involved in the process.
  • Result: The attorney is the only company applicant for the reporting company. This is because no one else other than the attorney was part of the preparing, directing, or executing the filing
• Scenario 2: Assume the same conditions as the previous scenario, except the attorney directs one of their paralegals to file the formation documents.
  • Result: The attorney and the paralegal are both company applicants for the resulting reporting company. This is because both parties were involved in either preparing, directing, or executing the company filing.

It is crucial to understand that company applicants are only required to file if the entity in question was created on or after January 1, 2024. Entities formed before this effective date are not obliged to report any company applicant information to FinCEN. Also, for new reporting companies, there is no requirement to update FinCEN of any information changes that occurs after the initial BOI filing.

Reporting Company Exemptions

Not only are there exceptions to the definition of beneficial owner, there are 23 specific types of entities that will not be considered reporting companies under this regulation. These exempt entities are often already subject to substantial federal and/or state regulation or are required to provide their beneficial ownership information to a governmental authority. To determine if your business qualifies as an exempt entity, refer to the insights article on this topic, Exemptions: Are You Exempt From FinCEN’s 2024 BOI Reporting Requirement?, which provides detailed information about these exemptions and their applicability.

Are You Prepared to File?

In essence, the BOI reporting requirements 2024 resonate as a call for a heightened sense of responsibility within the business realm. By targeting transparency gaps, these regulations aim to unveil the true beneficiaries of business entities and bring them under the regulatory spotlight. The scope of these guidelines encompasses both domestic and foreign reporting companies.

The criteria for beneficial ownership and company applicants have been outlined, ensuring that only those with substantial influence or control over entities are subjected to reporting under their company.

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