As of January 1, 2024, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, requires most legal entities, domestic or foreign, to report its Beneficial Ownership Information (BOI).
The rule creates transparency around company ownership structures and helps the federal government prevent financial crimes and fraud, such as money laundering, corruption, human trafficking, drug trafficking, tax fraud, and fraud against employees, customers, and other businesses.
Generally, business entities formed before Jan. 1, 2024 will have until Dec. 31, 2024 to file. Business entities formed on or after Jan. 1, 2024 will have 90 days after formation to file. Business entities that amend their formation documents on or after Jan. 1, 2024 will have 30 days to submit a new report.
A beneficial owner under the Corporate Transparency Act is an individual who directly or indirectly: (1) owns or controls at least 25% of your company’s ownership interests, or (2) exercises substantial control over your business. Common examples of someone that exercises substantial control can include the following:
Failure to comply can lead to criminal penalties of imprisonment for up to two years and/or a fine of up to $10,000, and a civil penalty of up to $500 per day.
Even if a reporting company files the report on time, penalties can be imposed if the report does not include the correct information. It is critical that the reporting company’s filing is accurate.
Most small business entities are not exempt from this requirement. Entities that are exempt from beneficial ownership information reporting include publicly traded companies, tax-exempt nonprofit organizations, certain large operating companies, and others that meet specific requirements. The Financial Crimes Enforcement Network lists 23 types of exempt entities that do not qualify as reporting companies and certain individuals that can’t be listed as a beneficial owner under the reporting requirement.
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