What Happens If a “Company Applicant” Won’t Provide Their Information for a BOI Report?
FinCEN’s new beneficial ownership information (“BOI”) reporting system has been up and running since January 1, 2024.[1] FinCEN is the Financial Crimes Enforcement Network of the U.S. Department of the Treasury. Under the Corporate Transparency Act (“CTA”)[2] and FinCEN’s regulations implementing the CTA,[3] tens of millions of private corporations, limited liability companies, and other business entities formed or registered under state or tribal law are now required to report to FinCEN certain information (the BOI) about each “beneficial owner” of the entity, as defined in the CTA and FinCEN’s implementing regulations.[4] In addition, for companies formed or, in the case of foreign companies, first registered to do business in the United States on and after January 1, 2024, the company must also report information about each “company applicant” who formed or registered the company.[5]
For each beneficial owner and company applicant, the entity must report the individual’s full legal name, date of birth, and residential address, unless the company applicant forms or registers the entity in the course of their business, in which case the individual may provide a business address.[6] The entity must also provide, for each beneficial owner and company applicant, a unique identifying number from an acceptable identification document such as a non-expired passport or U.S. driver’s license, as well as an image of that document.[7]
The term “company applicant” means the individual who “directly files” the document that creates or first registers the reporting company, and, if applicable, the individual who is “primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.”[8] Thus, there are two categories of company applicants: (1) the “direct filer” and (2) the individual who “directs or controls the filing action.”[9] Each company will have a “direct filer,” who is the individual who “actually physically or electronically filed” with the secretary of state or similar office the document that created or first registered the company.[10] Each company may have one, and only one, additional company applicant, if there was another individual “who was primarily responsible for directing or controlling the filing of the creation or first registration document …[,] even though the individual did not actually file the document with the secretary of state or similar office.”[11] In short, “[i]f more than one individual is involved in the filing, then two company applicants must be reported,” but “[n]o reporting company will have more than two company applicants.”[12]
This is confusing enough that FinCEN has issued additional guidance about who qualifies as a company applicant both in its Small Entity Compliance Guide[13] and in the Beneficial Ownership Information Reporting Frequently Asked Questions[14] it has issued. To determine who is primarily responsible for directing or controlling the filing of the document, FinCEN advises reporting companies to “consider who is responsible for making the decisions about the filing of the document, such as how the filing is managed, what content the document includes, and when and where the filing occurs.”[15] In many cases, this individual may work for a business formation service or an accounting or law firm.[16] An accountant or lawyer may be a company applicant in either of the two categories of company applicants if they (1) directly filed the document that formed or registered the reporting company, or (2) were primarily responsible for directing or controlling the filing.[17] FinCEN has provided the following example of how this could work in practice:
“[A]n attorney at a law firm that offers business formation services may be primarily responsible for overseeing preparation and filing of a reporting company’s incorporation documents. A paralegal at the law firm may directly file the incorporation documents at the attorney’s request. Under those circumstances, the attorney and the paralegal are both company applicants for the reporting company.”[18]
The analysis is similar when either the attorney or the company itself enlists the aid of a “corporate service provider” to file the formation or registration document with the secretary of state or similar office:
“Consider an attorney who completes a company creation document using information provided by a client, and then sends the document to a corporate service provider for filing with a secretary of state. In this example:
- The attorney is the company applicant who is primarily responsible for directing or controlling the filing because they prepared the creation document and directed the corporate service provider to file it.
- The individual at the corporate service provider is the company applicant who directly filed the document with the secretary of state.
….
If the client who initiated the company creation directly asks the corporate service provider to file the document to create the company, then the client is primarily responsible for directing or controlling the filing, and the client should be reported as a company applicant, along with the individual at the corporate service provider who files the document.”[19]
So, in either of these two scenarios, the individual at the corporate service provider who actually files the document with the secretary of state or similar office is a “company applicant” whose information the company must report to FinCEN in its initial report.
This is where our question for FinCEN arises: if a company, either on its own or through its accountant or attorney, directs a corporate service provider to file the formation or registration document, and the company then seeks to enroll in our service and requests that we file the initial BOI report with FinCEN on its behalf, what should we do if the individual at the corporate service provider refuses or otherwise fails to provide their information that must be included in the report? We have posed that question to FinCEN and await an answer. In the meantime, it appears that we will have no choice but to refuse to file the initial BOI report unless and until we have all of the required information in hand.
FinCEN has indicated that under the CTA and its implementing regulations, both individuals and corporate entities may be liable for willfully failing to report complete BOI.[20] The penalties for doing so are severe, including criminal penalties of up to two years imprisonment and a fine of up to $10,000.[21] Liability extends to any individual who willfully causes a reporting company’s failure to submit complete or updated BOI to FinCEN, including “a beneficial owner or company applicant who willfully fails to provide required information to a reporting company.”[22] As such, there is certainly pressure on the individual at the corporate service provider to provide the required information to the reporting company to be included in its initial BOI report. Even so, if the individual is unwilling to provide us with that information, then we cannot file the initial BOI report on the company’s behalf, as liability also extends to any “individual who willfully files a false or fraudulent beneficial report on a company’s behalf.”[23] In fact, FinCEN has specifically cautioned that “[p]ersons considering creating or registering legal entities that will be reporting companies should take steps to ensure that they have access to the beneficial ownership information required to be reported to FinCEN.”[24] In this scenario, while we would not be the persons creating or registering the entity, we would still be legally responsible for the completeness and accuracy of the information being reported to FinCEN. As such, unless FinCEN answers the question we have posed otherwise, we would be unable to undertake that responsibility unless we have access to all of the required information before we commit to filing the initial BOI report.
[1] For general discussions of the BOI reporting requirements, see, e.g., eMinutes, Questions Continue About FinCEN Beneficial Ownership Information Reporting (Dec. 8, 2023); eMinutes, FinCEN Reporting — Yes It Is Really Happening (Feb. 23, 2023).
[4] See 31 U.S.C. § 5336(b); 31 C.F.R. § 1010.380(a), (b).
[5] See 31 C.F.R. § 1010.380(a)(1)(i)(A), (b)(1)(ii).
[6] See id. § 1010.380(b)(1)(ii)(A)-(C).
[7] See id. § 1010.380(b)(1)(ii)(D).
[8] Id. § 1010.380(e)
[9] FinCEN, Small Entity Compliance Guide v. 1.1, at 34 (Dec. 2023).
[10] Id.
[11] Id.
[12] Id.
[13] Id. at 32-36.
[14] FinCEN, Beneficial Ownership Information Reporting Frequently Asked Questions, at 16-23 (updated Jan. 12, 2024) [hereinafter “FinCEN FAQs”].
[15] Id. at 19 (FAQ E.5).
[16] Id. at 19 (FAQ E.3).
[17] Id.
[18] Id.
[19] Id. at 20 (FAQ E.3).
[20] Id. at 31 (FAQ K.3).
[21] 31 U.S.C. § 5336(h)(3).
[22] FinCEN FAQs, supra note 14, at 32 (FAQ K.3(ii)); see also id. at 32 (FAQ K.5) (“Beneficial owners and company applicants should also be aware that they may face penalties if they willfully cause a reporting company to fail to report complete or updated beneficial ownership information.”).
[23] Id. at 31 (FAQ K.3(i)).
[24] Id. at 32 (FAQ K.5).