On two prior occasions, authors of this extension portal have written about FinCEN’s latest requirements for BOI reports. Readers of this article are highly encouraged to check out broader explanation of these topics in those articles at this link and this link.

Under the Corporate Transparency Act (CTA), beneficial ownership information (BOI) reports are required to be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau within the United States Department of Justice (DOJ). Now, that’s a lot of acronyms and legal mumbo jumbo, so let’s break everything down a bit.

First, as discussed in a prior article, FinCEN has been tasked by Congress to fight criminal actions taken by shell companies. These criminal actions that shell companies are being suspected of concealing range from tax evasion to human trafficking. In order to accomplish this task, FinCEN is requiring ‘reporting companies’ to submit a BOI report.

What is a Reporting Company?

Before we can discuss who a beneficial owner is, we need to define which types of companies qualify as ‘reporting companies.’  As a general rule, any entity that files with their state’s secretary of state but is not subject to another regulatory body’s oversight (e.g., the IRS) qualifies as a reporting company. As such, an LLC, which has to make filings with a state secretary of state but is not subject to another regulatory body’s oversight, is a reporting company that must file a BOI report with FinCEN. Conversely, an unincorporated sole proprietorship, which does not make a filing with the state secretary of state, is not a reporting company and does not have to file a BOI report with FinCEN. To provide yet another example, a 501(c)(3) nonprofit, which does make filings with a state secretary of state but is subject to a higher level of IRS scrutiny, does not qualify as a reporting company that has to file a BOI report with FinCEN.

Entities Subject to Reporting Requirements

The following list is a non-comprehensive list of entities that are subject to BOI reporting requirements:

• Limited Liability Company (LLC)
• S Corporations
• C Corporation
• Professional Limited Liability Company (PLLC)
• Professional Corporation (PC)
• Limited Partnership (LP)
• Registered Limited Liability Partnerships
• Limited Liability Limited Partnerships

Entities Not Subject to Reporting Requirements

The following list is a non-comprehensive list of entities that are not subject to BOI reporting requirements:

• Sole proprietorship (if not incorporated into, e.g., an LLC)
• General partnership (if not incorporated into, e.g., an LLC)
• Trust
• Nonprofit Corporation

Within Reporting Companies, Who Is a Beneficial Owner?

Per FinCEN’s Small Entity Compliance Guide, a ‘beneficial owner’ is defined as someone who owns or controls at least 25% of a company OR has substantial control over the company. As such, this definition provides two routes to being a beneficial owner: ownership & control.

Reporting companies are not required to identify the specific reason as to why an individual is considered a beneficial owner, which hopefully simplifies this process to a small degree.

Beneficial Owner via Ownership

An individual can be considered a beneficial owner under the ownership definition of the term if that individual directly owns, directly controls, indirectly owns, or indirectly controls more than 25% of ‘ownership interests.’

Ownership interests can include the following:

• Equity, stock, or voting rights
• Capital or profit interest
• Any interest that is convertible to equity, stock, voting rights, capital interest, or profit interest
• An option or privilege that can convert into equity, stock, voting rights, capital interest, or profit interest (or an interest that is subsequently convertible into those categories)

Page 18 of the Small Entity Compliance Guide provides more details on those specific interest types if there are more specialized questions that relate to an entity’s unique infrastructure. There is also a catch-all category to encompass any ownership interest that is somehow not classifiable under those categories. 

Beneficial Owner via Substantial Control

An individual can be considered a beneficial owner under the substantial control definition of the term if that individual exercises ‘substantial control’ over the entity filing the BOI report. There are four general categories used to define what the exercise of substantial control can look like:

• Being a senior officer in a company (C-suite position such as CEO, COO, CFO, etc. or an individual who possesses the authority of such a position)
• Any individual with authority to appoint or remove members of the board of directors (or group of individuals with similar authority)
• Any individual who acts as an ‘important decision-maker’ in the entity (FinCEN provides numerous examples of what this looks like on page 17 of the Small Entity Compliance Guide)

Page 17 of the Small Entity Compliance Guide provides more details on what substantial control can look like. Like the ownership aspect of BOI reporting, there is also a catch-all category to encompass any substantial control interest that is somehow not classifiable under those categories. 

What Are Beneficial Owners Required to Provide to FinCEN?

Fortunately for individuals navigating the BOI reporting process, the actual information required by FinCEN is not very complicated to obtain or report.

Information Required from Reporting Companies

Reporting companies are required to report the following the company:

• Full legal name (i.e., the name of the company filed with the state secretary of state)
• Any trade names (e.g., ‘doing business as’ or d/b/a names that the company uses)
• Complete current U.S. address (where the principal place of business is)
• IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN))
• State, tribal, or foreign jurisdiction of formation
  • Foreign reporting companies must also report the first state or tribe in which registration first occurred

Information Required from Beneficial Owners

Reporting companies are required to report the following about each of the beneficial owners:

• Full legal name
• Date of birth
• Complete current address
• Unique identifying number from one of the following documents (which must be up to date and not expired):
  • U.S. passport
  • State driver’s license
  • Identification document issued by a state government, local government, or tribe
    • If an individual lacks all of these forms of identification, the individual must submit a copy of their foreign passport.

Individuals seeking more information about reporting requirements are encouraged to read page 38 of the Small Entity Compliance Guide.

Are There Any Exclusions from the Definition of Beneficial Ownership?

While there are some exclusions from the definition of beneficial ownership, the exclusions, which are set forth on page 29 of the Small Entity Compliance Guide, are fairly limited:

• Minor children
  • Parents of a minor child who otherwise meet the definition of a beneficial owner are required to report certain information about themselves. Once the child reaches the age of majority, the BOI report must be updated.

• Individual acting as a nominee, intermediary, custodian, or agent of another individual
  • This exception enables professionals such as CPAs and attorneys who merely advise the beneficial owners on actions to avoid BOI reporting for each of their clients.
• Employee of the reporting company (assuming that employee does not exercise substantial control or have an ownership interest, as defined above)
• Individual whose sole interest in the company is an interest that will be obtained through inheritance
• Creditor of reporting company