A new disclosure rule is in place for businesses and non-compliance could result in penalties. Companies are required to submit a Beneficial Ownership Information (BOI) report. The rule was effective as of January 1, 2024, yet many businesses are not aware of it and therefore, are not yet compliant.
The new national rule applies to more than 32 million businesses across the country. The law comes from the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Treasury Department. Many businesses are unaware of their need to comply and thus far there has been sparse information put out to the public.
What is FinCEN?
The Financial Crimes Enforcement Network is a bureau of the Treasury Department that focuses on anti-money laundering. Their mission is “to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities”. The FinCEN gets its power from Congress and provides for the duties and responsibilities which include the collection, evaluation, and dissemination of information collected from other governmental agencies and non-governmental partners.
Corporate Transparency Act
The Corporate Transparency Act was passed by Congress in 2021. The legislation is designed to end the use of anonymous shell companies and also to follow the track of illicit money. Part of how the law works is the creation of a beneficial ownership database. The law provides for reporting requirements and companies who qualify must report by filing ownership information to FinCEN. The law is similar to other laws that are already in place in the UK that aim to thwart financial scams.
What are the Reporting Companies?
The requirement to disclose business ownership information (BOI) applies to domestic and foreign reporting companies. A domestic reporting company is an entity that is a corporation or limited liability corporation (LLC) or similar entity created through filing with the Secretary of State or a tribunal. Similarly, a foreign reporting company is one that is formed outside the United States but is registered and allowed to do business in the United States or any state or tribunal. There are 23 exemptions for who must file a BOI. The FinCEN provides an online compliance guide that provides additional information.
Exemptions to Reporting Requirements
There are 23 exemptions to reporting companies. The most significant exemption applies to large operating companies. A large operating company is an entity that has more than 20 full-time employees, operates a physical location in the United States and had more than $5 million in gross sales the previous year are exempt. Some other entities are exempt from reporting, so it is helpful to learn more about the requirements as possible to ensure compliance.
What Information Must Be Provided?
Information must be provided about the reporting company and its beneficial owners. The report must be filed with the FinCen directly and the person filing the report must certify that it is correct and complete. The report must contain the legal company name and DBA name and address, the state or jurisdiction where registered, taxpayer identification number (TIN), and complete information about the beneficial owners and applicants. The BOI must also include supporting documentation.
Penalties for Failure to Report
The failure to disclose to the FinCEN comes with some penalties that include both civil and criminal. The top executives of a company could be held responsible along with the company itself. Fines can be as much as $591 per day of violation for a willful failure to comply. Entities created in 2024 have 90 days to file after their initial registration. Entities established previously have one year to file a report. Entities created on or after January 1, 2025, have 30 days to file. Companies must also update the BOI periodically.
Businesses need to understand and comply with the new FinCEN rules or face penalties. To learn more, contact our legal team at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or online to schedule a consultation.