EMINUTES places cookies on your device to give you the best user experience. By using our website, you agree to the placement of these cookies. Please read our updated Privacy and Cookie Policy.

8 • 2023

Questions Continue About FinCEN Beneficial Ownership Information Reporting

We continue to post articles tracking developments following Congress’s passage of the Corporate Transparency Act (“CTA”) early in 2021 and what the CTA means for reporting of beneficial ownership information (“BOI”) for U.S. business entities.[1] In one of the articles, we covered in detail the final rule (“BOI Reporting Rule”) issued on September 30, 2022, by the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury laying out the particulars for BOI reporting, including who will have to report, what will have to be reported, and when reports will have to be filed.[2] In December 2023, FinCEN issued Version 1.1 of its Small Entity Compliance Guide, which provides detailed guidance to help small entities comply with the requirements of the BOI Reporting Rule. Even so, questions continue to arise as to the particulars of BOI reporting. This article covers some of the questions that we’ve fielded.

Who will have to report (including joint owners of stock or membership interests)

In general, the BOI Reporting Rule will require millions of business entities (most small corporations, limited liability companies, and other similar entities) formed in the United States, which are referred to as “reporting companies,” to report certain identifying information (the BOI) about the beneficial owners who own or control such entities, as well as the company applicants who form or register the reporting companies. The term “beneficial owner” is broadly defined to include (1) any individual who, directly or indirectly, either exercises “substantial control” over the reporting company and/or (2) controls at least 25 percent of its ownership interests.[3] “Substantial control” is likewise broadly defined to include: service as a “senior officer” of the entity (including the president, chief executive officer, chief financial officer, chief operating officer, general counsel, or any other officer who performs a similar function); authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body); and direction or substantial influence over “important decisions” made by the company, such as the nature, scope, and attributes of its business and any major expenditures or investments.[4]

The term “ownership interests” includes, among other things, “[a]ny equity, stock, or similar instrument” evidencing an ownership interest in the reporting company.[5] Individuals may directly or indirectly own or control an ownership interest “through any contract, arrangement, understanding, relationship, or otherwise,” including through “[j]oint ownership with one or more other persons of an undivided interest in such ownership interest”[6] or, in some circumstances, a trust or similar arrangement that holds the ownership interest.[7] So, for example, if a husband and wife are joint owners of at least 25% of a reporting company’s stock or membership interests, then both of them must provide BOI to FinCEN under the BOI Reporting Rule, even if one of them is otherwise uninvolved in the company’s business.[8]

What information must be reported (a foreign passport may be okay)

Every individual who qualifies as a beneficial owner of a reporting company must report to FinCEN the individual’s full legal name, date of birth, and residential street address.[9] In addition, the individual must provide a unique identifying number and issuing jurisdiction from, and an image of, one of the following documents: (1) a non-expired U.S. passport; (2) a non-expired State driver’s license; (3) a non-expired identification document issued to the individual by a State, local government, or Indian tribe; or (4) if the individual does not possess any of the foregoing documents, a non-expired foreign passport.[10] Thus, if a foreign individual qualifies as a beneficial owner of a reporting company, and the individual does not have a State driver’s license, then the individual can comply with the BOI Reporting Rule by submitting a non-expired foreign passport.

FinCEN identifiers

If an individual has a beneficial ownership interest in a number of reporting companies, then it makes sense to obtain a unique “FinCEN identifier.” An individual may obtain a FinCEN identifier by submitting an application to FinCEN (once the system goes live) containing the information set out in the preceding paragraph, that is, name, birth date, residence address, and identification document.[11] Once a FinCEN identifier is issued to the individual and provided by the individual to the reporting company, the reporting company may then include the FinCEN identifier in its report to FinCEN in lieu of the BOI for that individual.[12]

Wait and see

Of course, all of the foregoing assumes that FinCEN’s filing system is up and running for the scheduled start of the new reporting regime on January 1, 2024. We continue to be prepared to file BOI reports on behalf of new companies formed or registered on or after that date within the time required by FinCEN. However, because companies already existing on January 1, 2024, have a full year to file to file their initial BOI reports, we continue to intend to wait until the kinks in the system are worked out before filing reports on behalf of our existing companies.

[1] See eMinutes, “FinCen Deadline Extended for New Companies to Report” (Sept. 27, 2023); “FinCEN Reporting — Yes It Is Really Happening” (Feb. 23, 2023); “Corporate Anonymity After FinCEN Regulations Implementing the CTA” (Feb. 28, 2022); “Our FinCEN Game Plan” (Feb. 12, 2022); “Who Can Access Information About Real Estate Transactions That Must Be Reported to FinCEN?” (Jan. 8, 2022); “Delaware LLC Remains Best Way for Celebrities to Preserve Anonymity Even After the Corporate Transparency Act” (Jan. 20, 2021).

[2] Once the BOI Reporting Rule takes effect on January 1, 2024, it will be codified at 31 C.F.R. § 1010.380. For now, the BOI Reporting Rule appears at the end of the final rule published in the Federal Register on September 30, 2022. See FinCEN, Beneficial Ownership Information Reporting Requirements, 87 FR 59,498, at 59,591 to 59,596 (Sept. 30, 2022).

[3] 31 C.F.R. § 1010.380(d).

[4] Id. § 1010.380(d)(1) (definition of “substantial control”), (f)(8) (definition of “senior officer”).

[5] Id. § 1010.380(d)(2)(i)(A). Other types of “ownership interests” include a capital or profit interest, convertible instruments, and options or other non-binding privileges to sell stock, a capital or profit interest, or convertible instruments. Id. § 1010.380(d)(2)(i)(B)-(D).

[6] Id. § 1010.380(d)(2)(ii)(A).

[7] Id. § 1010.380(d)(2)(ii)(C). In particular, the following individuals may hold ownership interests in a reporting company through a trust or similar arrangement: a trustee or other individual with authority to dispose of trust assets; a beneficiary who is the sole permissible recipient of trust income and principal or who has the right to demand a distribution of or withdraw substantially all of the trust assets; and a grantor or settlor who has the right to revoke the trust or otherwise withdraw trust assets. Id.

[8] Cf. FinCEN, Small Entity Compliance Guide v. 1.1, at 18 (Dec. 2023) (“Reporting companies are required to identify all individuals who own or control at least 25 percent of the ownership interests of the company.”).

[9] 31 C.F.R. § 1010.380(b)(1)(ii)(A)-(C).

[10] Id. § 1010.380(b)(1)(ii)(D), (E).

[11] Id. § 1010.380(b)(4)(i)(A).

[12] Id. § 1010.380(b)(4)(ii).