– Most Entities Now Require Disclosure or Face Large Penalties –

Most anyone who has created business entities, even if no business is conducted because the entity only owns passive real estate or stocks and bonds, must now disclose who owns, controls, or has economic rights in or from the entity, or risk significant penalties. Common small business limited partnerships, corporations, and limited liability companies (“LLC’s) are business entities for this purpose. The result is more costly compliance in the formation and ongoing maintenance of such entities, known as “Reporting Companies.” Failing to comply with these rules exposes those responsible to civil penalties of not more than $500 for each day that the violation continues or has not been remedied, and may be fined not more than $10,000, imprisoned for not more than two (2) years, or both.

On September 30th, 2022, the Financial Crimes Enforcement Network (“FinCEN”) released the final rule on Beneficial Ownership Information (“BOI”) reporting under Section §6403 of the Corporate Transparency Act (“CTA”). The new Section 31 C.F.R. §1010.380 requires certain types of entities called “Reporting Companies” to submit BOI to FinCEN. Reporting obligations begin upon the effective date of January 1st, 2024 (“Effective Date”) and apply to both existing entities and newly created entities. Pursuant to 31 C.F.R. §1010.308 (a), entities created before the Effective Date, will have until no later than January 1st, 2025, to file their initial BOI report. Entities created on or after the Effective Date are required to file a BOI report within thirty (30) calendar days of the earlier of the date in which it receives actual notice that its creation has become effective or the date in which the secretary of state, or similar office, provides public notice, such as through a publicly accessible registry (SunBiz in Florida). FinCEN has recently extended this time to ninety (90) days for entities created on or after the Effective Date.

The responsible persons of a Reporting Company must file on behalf of its Beneficial Owners. The definition of a “Reporting Company” under 31 C.F.R. §1010.380(c) includes as a corporation, limited liability company, or other similar entity that is created by filing a document with a secretary of state or a similar office under the law of a State; or formed under the law of a foreign country and registered to do business in the U.S. by filing a document with a secretary of state or a similar office under the law of a State. Therefore, this includes most entity structures, except for most general partnerships and non-business trusts, and those listed in 31 C.F.R. §1010.380(c)(2). These exceptions pertain mostly to entities that are otherwise already regulated in some manner (registered broker dealer, investment company on securities exchange, etc.), banks, government entities, larger entities that meet certain criteria (gross receipts, number of employees, etc.), and others such as charitable or non-profit organizations. It should be known that even certain inactive entities will need to file a BOI report. If an entity is deemed a Reporting Company, pursuant to 31 C.F.R. §1010.380(b)(1), they are required to report the entities legal name; any trade name or DBA; business address; jurisdiction it was formed and registered; and its EIN.

If the entity is one which falls within the definition of a Reporting Company, the “Beneficial Owners” of the entity and each “Applicant” with respect to that Reporting Company are required to provide their BOI. Pursuant to 31 C.F.R. §1010.380(d), a “Beneficial Owner” is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the entity (including a Trustee of a trust, see 31. C.F.R. §1010.380(d)(1)(ii)); or owns or controls not less than twenty-five percent (25%) of the “ownership interests” of the entity as defined in 31 C.F.R. §1010.380(d)(2). There are certain exceptions to the definition of a Beneficial Owner, which include persons such as minor children; individuals acting as a nominee, custodian, or agent; an individual whose only interest in the Reporting Company is through a right of inheritance; and others. This will include disclosure of Beneficial Owners of a trust or general partnership in the event they are involved in the ownership of a Reporting Company. An “Applicant” is defined under 31 C.F.R. §1010.380(e) as any individual who files an application to form a Reporting Company under the laws of a state, or registers or files an application to register a Reporting Company to do business in the U.S. by filing a document with the secretary of state or similar office under the laws of a state. This applies to both the persons who file the company registration and the individual who is “primarily responsible” for directing or controlling the filing (Attorney and Legal Assistant).

If you are deemed a Beneficial Owner or an Applicant of a Reporting Company, 31 C.F.R. §1010.380(b)(ii) provides that you are required to provide specific personal details such as your full legal name; date of birth; current residential or business street address; and a unique identifying number from an acceptable identification document (passport, driver’s license, or other identification document issued by a State) on the FinCEN BOI report. After the initial report is filed, any changes to the BOI of the Reporting Company is required to be made within thirty (30) days.

Failure to conform to this reporting will result in the application of certain penalties. Pursuant to 31 U.S.C. §5336(h)(3), any person who willfully provides, or attempts to provide false or fraudulent information, or fails to report complete or updated beneficial information to FinCEN will be liable for a civil penalty of not more than $500 for each day that the violation continues or has not been remedied, and may be fined not more than $10,000, imprisoned for not more than two (2) years, or both.

The new reporting obligation for Beneficial Owners of a Reporting Company is a significant change to the anonymity some structures provided to those Beneficial Owners. With the extent of the penalties non-reporting or fraudulent reporting carry, it is important to have a plan in place to submit these disclosures in a timely manner by the required deadlines. As a result of the implementation of this new reporting, we are implementing and offering a new service to bring those existing entities current on their filing obligations prior to the January 1st, 2025, due date and as part of the organization of new entities. Please contact our office to discuss your specific reporting circumstances.


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