Who Needs to Report Beneficial Ownership Information?

Did you know that over 32 million businesses in the U.S. are now required to report their beneficial ownership information (BOI) under the Corporate Transparency Act? This requirement is necessary for increasing corporate transparency and combating financial crimes such as money laundering and tax evasion. Ensuring that your company complies with these regulations is more important than ever. 

This blog will explain which entities need to report, outline exemptions, and provide guidance on handling special cases, helping you stay compliant and avoid penalties.

Types of Entities Required to Report

The Corporate Transparency Act (CTA) mandates that various types of business entities must disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This includes both domestic and foreign entities, as well as other legal entities formed through specific filings. Here’s a detailed breakdown:

1. Corporations and Limited Liability Companies (LLCs)

• Domestic Entities: Any corporation or LLC formed within the United States. These entities must report their beneficial owners to comply with the CTA.
• Foreign Entities: Any corporation or LLC formed outside the United States but registered to do business within the U.S. These companies must also report their beneficial owners.

2. Other Legal Entities

• Partnerships and Trusts: These entities must report if they are created by a filing with a state office or a similar entity. This generally includes:
  • Limited Liability Partnerships (LLPs)
  • Limited Liability Limited Partnerships (LLLPs)
  • Business Trusts
  • Most Limited Partnerships (LPs)

Exemptions from Reporting

The CTA provides exemptions for certain categories of entities, recognizing that some already adhere to strict transparency requirements or are low risk for misuse:

• Large Operating Companies:

1. • Companies with more than 20 full-time employees in the U.S.
   • Over $5 million in gross receipts or sales.
   • An operating presence at a physical office within the U.S.​
2. Governmental Authorities: Entities operating as governmental bodies are exempt from reporting requirements​.
3. Banks: Institutions defined as banks under the Federal Deposit Insurance Act are exempt.​ 
4. Credit Unions: Entities defined by the Federal Credit Union Act are also exempt from BOI reporting​.
5. Investment Companies: Companies registered under the Investment Company Act of 1940 do not need to report their beneficial owners​.
6. Insurance Companies: Defined by the laws of any State or the United States, insurance companies are exempt from the BOI reporting requirements​.
7. Public Utilities: Entities functioning as public utilities are not required to report beneficial ownership information​​.
8. Subsidiaries of Exempt Entities: Entities controlled or wholly owned by one or more exempt entities do not need to file BOI reports​ .

While many entities fall under these exemptions, there are special cases where the reporting requirements may still apply, particularly for trusts, foundations, statutory trusts, subsidiaries, and parent companies.

Criteria for Exemptions

To qualify for an exemption, the entity must meet specific criteria outlined by the Corporate Transparency Act. For example, a large operating company must have a physical office and meet the employee and revenue thresholds to be exempt.

Special Cases

1. Reporting for Trusts, Foundations, and Statutory Trusts

• Trusts: Trusts are reporting companies if they are created by filing a document with a state office.
• Foundations: Similar to trusts, foundations must report if they are registered entities.
• Statutory Trusts: These entities must report BOI if created by filing with a state office.

2. Reporting for Subsidiaries and Parent Companies

Subsidiaries must report BOI unless wholly owned by an exempt entity. Parent companies must ensure their subsidiaries comply unless they qualify for an exemption.

Impact of Non-Compliance

Non-compliance with BOI reporting requirements can result in severe penalties, including substantial fines and potential criminal charges. Ensuring compliance is not just about meeting legal obligations but also about maintaining business integrity.

Legal and Financial Consequences

• Civil Penalties: Fines of up to $500 per day for each day the violation continues.
• Criminal Penalties: Possible imprisonment for up to two years and fines up to $10,000 for willful violations.

End Note!

Determining whether your company needs to report Beneficial Ownership Information is essential for compliance with the Corporate Transparency Act. By understanding the types of entities required to report, exemptions, and special cases, you can ensure your business meets its legal obligations.