Who’s in Charge? The Treasury Department Wants to Know…

Effective as of January 1, 2024, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) now requires all “reporting companies” to file a Beneficial Owner Information (BOI) report about their beneficial ownership.  All existing “reporting companies” must comply with this filing obligation by no later than January 1, 2025; any “reporting companies” formed or registered after January 1, 2024 should comply with this filing obligation promptly after receiving confirmation that their formation or registration is effective.

Key takeaways:

• If an entity does not satisfy all of the requirements of an exemption, it is a “reporting company” and must file a BOI report.

• The BOI report must identify and disclose all “beneficial owners” of the reporting company.

• A beneficial owner is an individual who, either directly or indirectly, exercises “substantial control” over, or owns or controls at least 25% of the ownership interests of, a reporting company.

• Entities formed or registered after January 1, 2024 must also identify and disclose “company applicants” who direct or control the entity’s initial public filing.

• Non-US entities must file a BOI report if they are required to register to do business in any US state and are otherwise classified as a “reporting company”.

Read on below for more detail on: (A) what kinds of companies are exempted from the “reporting company” obligations; (B) what kind of information must be disclosed in the BOI report; and (C) how to file the BOI report.

What is a “Reporting Company”?

FinCEN’s definition of a “reporting company” covers all limited liability companies, corporations, limited partnerships and non-US entities that are organized or registered to do business in any US state, unless picked up by one of 23 specific exemptions (largely for entities in industries that are already subject to pre-existing reporting requirements).

What kinds of entities are exempt from the reporting requirement?

Entities exempt from the BOI reporting requirement include:

1. Certain investment companies, investment advisers, venture capital fund advisers or pooled investment vehicles that are registered with the SEC and have disclosed information about their owners and officers.

2. Certain tax-exempt entities.

3. “Large operating companies” that:

• Employ more than 20 full-time employees in the US, AND

• Have an operating presence at a physical office within the US, AND

• Filed a tax return for the previous year reporting more than $5m in gross revenues from US sources.

4. Certain inactive entities.

What information needs to be reported?

Reporting companies existing prior to January 1, 2024 must identify and disclose each “beneficial owner” of the reporting company.  A beneficial owner is an individual who, either directly or indirectly: 

1. exercises “substantial control” over a reporting company; OR 

2. owns or controls at least 25% of the ownership interests of a reporting company.

Note: Reporting companies are not required to report the reason (i.e., substantial control or ownership interests) that an individual is a beneficial owner. 

Reporting companies formed or registered after January 1, 2024 must also identify and disclose at least 1 (but no more than 2) “company applicants”.  A reporting company’s “company applicants” are the individuals who:

1. directly filed the document that created or registered a reporting company; AND

2. to the extent applicable, the individual who was primarily responsible for directing or controlling that filing.

Note: The team at Macklin Law may be a “company applicant” for one of your entities, depending on the extent of our involvement in forming / registering that entity.

Who has “substantial control” over a reporting company?

An individual has “substantial control” if they meet any of the following criteria: 

1. They are a “senior officer”, including:

• A member of the C-suite or the company’s General Counsel;

• Any officer who performs the same functions as a C-suite exec; OR

• Any other officer, regardless of official title, who performs a similar function as these officers

2. They have the ability to appoint or remove any senior officer or a majority of the company’s Board;

3. They have substantial influence over important business, financial or structuring decisions; OR

4. They exercise any other form of substantial control over the reporting company.

Note: The “substantial control” evaluation is applied on a look-through basis – so, it will capture an individual who exercises “substantial control” indirectly via an intermediary entity (like a VC fund or personal investing entity). 

What comprises an “ownership interest” of a reporting company?

An individual’s direct or indirect ownership interest includes: 

1. Any stock, LLC capital or profits interest, partnership interest or other equity, regardless of whether or not such equity has voting rights;

2. Any convertible instrument that could convert into equity, stock or voting rights (e.g., SAFEs, convertible promissory notes, warrants and options);

3. Any put, call, straddle, or other option or privilege of buying or selling equity; OR

4. Any other instrument, contract, arrangement, relationship or mechanism used to establish ownership of a reporting company.

Note: The 25% threshold is calculated on the basis of all issued and outstanding equity interests, convertibles, options, securities and instruments, on an as-converted, as-exercised basis. 

How do I file a BOI report?

Each reporting company must submit a BOI report electronically, via FinCEN’s electronic filing platform.  There is no fee to submit the filing.  FinCEN has prepared a small entity compliance guide to help you determine whether an entity qualifies for any “reporting company” exemptions – and, if not, what information is required to be disclosed.

Note: All information submitted as part of a BOI report is required to be held confidentially by FinCEN, accessible by government officials only for authorized activities related to national security, intelligence, and law enforcement.  Financial institutions may also have access to such information in certain circumstances, with the consent of the reporting company.

Disclaimer: All of the information included in this website is provided for informational purposes only and should not be construed as legal advice. Please contact us for more information.