NOTICE TO CLIENTS AND FRIENDS: NEW FINCEN BENEFICIAL OWNERSHIP (“BOI”) REPORTING REQUIREMENT IMPACTING BOTH NEW AND ESTABLISHED ENTITIES
Starting on January 1, 2024, many companies in the United States, including Puerto Rico, will have to report information about their beneficial owners (as defined below) to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury. The Reporting Rule issued by FinCEN on September 30, 2022 (the “FinCEN Reporting Rule”), seeks to implement the beneficial ownership information (“BOI”) reporting provisions of the Corporate Transparency Act (“CTA”). The CTA, enacted on January 1, 2021, creates new BOI reporting requirements as part of the U.S. government’s efforts to identify illicit actors using corporate structures to conceal their identities and launder ill-gotten gains through the United States.
Who is required to file BOI reports?
Companies required to file BOI reports are referred to as a Reporting Company. The FinCEN Reporting Rule identifies two types of Reporting Companies:
- Domestic reporting companies – corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States and
- Foreign reporting companies – entities (including corporations and limited liability companies) formed under the laws of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
The FinCEN Reporting Rule currently exempts 23 types of entities from the BOI reporting requirements, including primarily entities already subject to FinCEN regulation, publicly traded companies, certain nonprofits, among others.
For purposes of the FinCEN Reporting Rule and the BOI reports, “State” includes the Commonwealth Puerto Rico. Accordingly, any corporation, LLC, or any other entity created by the filing of a document with the Puerto Rico Secretary of State is considered a domestic reporting company. Similarly, foreign entities authorized to do business in Puerto Rico are considered foreign reporting companies subject to the FinCEN Reporting Rule.
Generally, a Reporting Company must submit information about itself, its “beneficial owners”, and “company applicants”, as further described below.
Who is a Beneficial Owner?
A Beneficial Owner is an individual who either directly or indirectly (a) owns or controls at least 25% of a Reporting Company’s ownership interests or (b) exercises substantial control over a Reporting Company.
An individual is considered to exercise substantial control if the individual:
- Is a senior officer (i.e. president, CEO, CFO, COO, general counsel, or any other officer who performs a similar function).
- Has authority to appoint or remove certain officers or a majority of the members of the board of directors (or similar body) of the Reporting Company.
- Is an important decision-maker for the Reporting Company.
- Has any other form of substantial control over the Reporting Company.
Reporting Company Applicant
Only Reporting Companies created or registered on or after January 1, 2024, will need to report their company applicants. Up to two individuals could qualify as company applicants: (1) the individual who directly files the document that creates or registers the company and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
Reporting Companies created or registered on or before December 31, 2023, do not need to identify company applicants.
Timing and Effectiveness
Existing Reporting Companies created or registered to do business before January 1, 2024, must file their initial BOI Report by January 1, 2025.
New Reporting Companies created or registered to do business in 2024 must file their initial BOI Report within 90 days after receiving actual or public notice that its creation or registration is effective. New Reporting Companies created or registered on or after January 1, 2025, will have 30 calendar days to file their initial BOI reports with FinCEN.
The BOI report requirement is effective on January 1, 2024. FinCEN will not accept BOI reports prior to that date.
Updates to BOI reports
Any changes or inaccuracies in previously reported information in BOI reports must be updated by filing and updated BOI report no later than 30 calendar days after (i) there is a change to previously reported information or (ii) a Reporting Company becomes aware that previously reported information is inaccurate.
Penalties
Reporting Companies failing to timely and properly comply with the BOI reporting requirements could face civil and criminal penalties. Civil penalties include a fine of $500 per day and up to $10,000 per violation, among others. Criminal penalties may include a maximum of 2 years of imprisonment.
In preparation for the upcoming BOI report requirements implementation, we urge our clients and friends to familiarize themselves with the relevance, requirements, and reporting details as determined by FinCEN. We are available to assist with the above and provide any additional information necessary to ensure compliance in a timely manner.
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This document has been prepared for information purposes only and is not intended as and should not be relied upon as legal advice. If you have any questions or comments about the matters discussed in this notice, wish to obtain more information related thereto, or about its possible effect(s) on policy or operational matters, please contact us.
