The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued the final rule implementing the bipartisan Corporate Transparency Act (CTA) beneficial ownership information (BOI) reporting provisions on September 29, 2022. And the effective date of the rule will be January 1, 2024.

The rule will require most corporations, LLCs, and other entities created or registered to do business in the United States to report information about their beneficial owners (those who ultimately own or control the company) to FinCEN. The CTA authorises FinCEN to collect and disclose this information to authorised government departments and financial institutions subject to effective safeguards and controls. This provision is intended to prevent drug traffickers, fraudsters, and corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States. The final rule indicates who must file a BOI report, what information needs to be disclosed, and the filing deadlines. Specifically, the rule requires reporting companies to file reports with FinCEN that identify two categories of persons: (1) the beneficial owner of the entity; and (2) the company applicant of the entity.

1. What is BOI?
   
   BOI (Beneficial Ownership Information) refers to identifying information about the individuals who directly or indirectly own or control a company.
   
   In general, a beneficial owner is any individual who directly or indirectly exercises “substantial control” over the reporting company, or who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.
   
   

   (1)

   Substantial Control Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over, important decisions the reporting company makes. In addition, any senior officer is deemed to have substantial control over a reporting company.

   (2)

   Ownership Interests “Ownership interests” generally refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock as well as more complex instruments.

   
   A Few Examples of How to Identify Beneficial Owners
   
   

   (1)

   The reporting company is a limited liability company (LLC). Individual A is the sole owner and president of the company and make important decisions for the company.                 First, individual A exercises substantial control over the company because A is a senior officer of the company (the president), and A makes important decisions for the company. Second, individual A owns 25 percent or more of the reporting company’s ownership interests. Therefore, individual A is the beneficial owner, his/her information must be filed to FinCEN.

   (2)

   The reporting company is a corporation. The company’s total outstanding ownership interests are shares of stock. Three people (Individuals A, B, and C) own 50 percent, 40 percent, and 10 percent of the stock, respectively, and one other person (Individual D) acts as the President for the company but does not own any stock. Individual A owns 50% of the company’s stock (>25% of the company’s ownership interests) and therefore is a beneficial owner. Individual B owns 40% of the company’s stock (>25% of the company’s ownership interests) and therefore is a beneficial owner. Individual C is not a company officer and does not directly or indirectly exercise any substantial control over the company. Individual C also owns 10% of company’s stock, which is less than the 25% interest needed to qualify as a beneficial owner by virtue of ownership interests. Individual C is therefore not a beneficial owner of the company. Individual D is president of the company and is therefore a beneficial owner. As a senior officer of the company, Individual D exercises substantial control, regardless of whether the individual owns or controls 25% of the company’s ownership interests. Therefore, assuming no other facts. Individual A, B, D are beneficial owners, their information must be filed to FinCEN.

   
   
2. Content of BOI Report
   
   When filing a Beneficial Ownership Information (BOI) report, clear beneficial owner or company applicant information is required there:  
   
   

   (1)	Name
   (2)	Date of Birth
   (3)	The name of the state or jurisdiction that issued the identification document.
   (4)	An image of the identification document
   (5)	Unique identification numbers for acceptable identification documents, which include the following: (a) A non-expired driver’s license issued by a U.S. state. (b) A non-expired identification document issued by a U.S. state or local government, or Indian Tribe that is issued for the purpose of identifying the individual. (c) A non-expired passport issued by the U.S. government (d) A non-expired passport issued by a foreign government (only when an individual does not have one of the other three forms of identification listed above).
   (6)	Address (a) For a beneficial owner, the reporting company must report the residential street address. (b) For a company applicant, the reporting company must report the individual’s residential street address. However, if an individual engages in the business of corporate formation (e.g., as an attorney or corporate formation agent) and files the formation or registration document in the course of that business, then the reporting company must report the current street address of the company applicant’s business. For example, if the company applicant is a paralegal who filed the document while working at a law firm, the reporting company must report the business address of the law firm where the paralegal worked when filing the document.

   
   
3. Additional Information to Be Filed by the BOI
   
   Except BOI, there is other information that needs to be filed. And the information that needs to be reported depends on when the company was created or registered.
   
   

   (1)	If a reporting company is created or registered on or after January 1, 2024, the reporting company will need to report information about itself, its beneficial owners, and its company applicants.
   (2)	If a reporting company was created or registered before January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners. The reporting company does not need to provide information about its company applicants.

   
   
4. Applicant of Reporting Company
   
   Only reporting companies formed or registered on or after January 1, 2024, will have to report their company applicants. The rule defines that the maximum number of applicants for a filing company is two.
   
   Eligible Applicants
   
   

   (1)	the individual who directly files the document that creates, or first registers, the reporting company; and
   (2)	the individual that is primarily responsible for directing or controlling the filing of the relevant document.

   
   A Few Examples of How to Identify Company Applicant
   
   

   (1)

   Individual A is creating a new company. Individual A prepares the necessary documents to create the company and files them with the relevant state or Tribal office, either in person or using a self-service online portal. No one else is involved in preparing, directing, or making the filing. Individual A is a company applicant because Individual A directly filed the document that created the company, and individual A is the only company applicant. State or Tribal employees who receive and process the company creation or formation documents should not be reported as company applicants.

   (2)

   Individual A is creating a company, he prepares the necessary documents to create the company and directs Individual B to file the documents with the relevant  state or Tribal office. Individual B then directly files the documents that create the company. Individuals A and B are both company applicants—Individual B directly filed the documents, and Individual A was primarily responsible for directing or controlling the filing.

   
   
5. BOI Filing Deadline
   
   A reporting company created or registered before 1 January 2024 will need to file an initial beneficial ownership information report by 1 January 2025.
   
   A reporting company created or registered on or after 1 January 2024 and before January 1, 2025, will be required to file an initial beneficial ownership information report 90 calendar days from the date of the notice or announcement of creation or registration.
   
   A reporting company created or registered on or after 1 January 2025 will be required to file an initial beneficial ownership information report 30 calendar days from the date of the notice or announcement of creation or registration.
   
   
6. What Penalties Do Individuals Face for Violating BOI Reporting Requirements?
   
   Both individuals and corporate entities can be held accountable for intentional violations. This includes not only an individual who actually submits (or attempts to submit) inaccurate information to FinCEN, but also anyone who deliberately provides false information to the filer for reporting purposes.
   
   If a mistake or omission is rectified within 90 days of the original report deadline, potential penalties may be avoided. However, failure to fulfill beneficial ownership information reporting obligations may result in civil and criminal penalties.
   
   According to the Corporate Transparency Act, a person who intentionally violates the BOI reporting requirements may face civil penalties of up to $500 for each day of the ongoing violation. Additionally, they may be subject to criminal penalties of up to two years of imprisonment and a fine of up to $10,000. Potential violations include the wilful failure to file a beneficial ownership information report, the deliberate submission of false beneficial ownership information, or the intentional failure to rectify or update previously reported beneficial ownership information. The above penalty information was issued and updated on 12/12/2023.
   
   
7. What Company Will Be Exemption/ Required to file BOI?
   
   

   (1)

   (a)    domestic reporting company (i)    a corporation (ii)   a limited liability company, or (iii)  any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. (b)    foreign reporting company (i)   a corporation, limited liability company which was registered under the law of other U.S. states, or (ii)  other entity formed under the law of a foreign country which registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a foreign country. Note: For the definitions of both domestic and foreign reporting companies, a “state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.

   (2)

   Exemptions from the Reporting Requirement         The Corporate Transparency Act exempts 23 types of entities from the beneficial ownership information reporting requirement. Below are four of these types: (a) Any issuer of securities that is registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l); or (B) required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)). (b) Insurance companies under the definition of Section 2 of the Investment Company Act of 1940. (c) Certain types of banks that are defined in (A) section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); (B) section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a– 2(a)); or (C) section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b– 2(a)). (d) Federal or state credit unions as defined in section 101 of the Federal Credit Union Act.

   
   

Reference:
https://www.fincen.gov/boi
https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet
https://www.fincen.gov/news/news-releases/fincen-issues-final-rule-beneficial-ownership-reporting-support-law-enforcement
https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements#citation-115-p59513