Breaking Down FinCEN’s New BOI Reporting FAQs: Key Updates for Businesses

In its ongoing effort to provide clarity to businesses, FinCEN recently published another round of FAQs about Beneficial Ownership Information (BOI) reporting under the Corporate Transparency Act (CTA). These latest FAQs expand on key areas of BOI reporting, addressing common questions from businesses, compliance teams, and legal professionals. Here’s an overview of the most important updates and what they mean for your business

1. Clarification on Reporting Company Types

The new FAQs include crucial clarifications on which entities are required to report BOI. While the CTA primarily targets corporations, LLCs, and similar entities, these FAQs provide further guidance for other entities, such as trusts, partnerships, and nonprofits, to help determine their reporting obligations.

Specific exemptions, such as those for small or dormant entities, are explained in more detail, particularly in section L. This is especially helpful for nonprofit organizations and smaller businesses trying to assess whether they are required to report.

2. Clarifying Beneficial Owners and Company Applicants

One of the most notable updates is the clearer distinction between beneficial owners and company applicants, primarily in section E. Many businesses face challenges in identifying who qualifies as a beneficial owner, especially when ownership structures are complex. The FAQs clarify how to recognize individuals with significant control or substantial interest in the company who must be reported (see section D).

The new FAQs emphasize the two ways that someone can be a beneficial owner:

1. They exercise substantial control over the reporting company, typically by making business or financial decisions, or
2. They own or control at least 25% of the company.

For companies formed after January 1, 2024, the FAQs also require that company applicants—those responsible for forming the entity—be reported. This is a critical point for businesses formed across multiple jurisdictions, where different people might be involved in the formation process.

The FAQs also outlined what to do when there may be more than one company applicant, stating that only up to two people 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.

3. Updates to Reporting Timeframes and Penalties

The FAQs emphasize the importance of timely and accurate reporting of changes to beneficial ownership information. While the general requirement has been a 30-day window for reporting changes, the FAQs provide further details on specific situations, such as mergers, changes in controlling interests, and ownership transfers, which need to be reported promptly.

Failure to meet these deadlines can result in significant penalties, highlighting the need for businesses to have efficient compliance procedures in place.

The document once again emphasized the current inflation-adjusted penalties for failing to complete on-time filings, which is currently $591 per day and up to two years of imprisonment. Note that fees will be adjusted annually for inflation, so the financial penalties are likely to increase in 2025.

4. Guidance for International and Foreign-Owned Entities

The FAQs offer additional clarity for international and foreign-owned entities operating in the US These businesses now have more detailed guidance on determining if they fall under BOI reporting requirements. The updates include specific examples that help multinational corporations with complex ownership structures understand their US obligations under the CTA.

Notably, the latest clarification states that foreign entities are only reporting companies if they have filed with a secretary of state or equivalent bureau to register their business in the United States.

5. Clarification on Exemptions for Large Operating Companies

Another significant update pertains to the large operating company exemption (section L). The FAQs clarify how companies with substantial revenue, physical US operations, and a large employee base can qualify for this exemption. However, they also caution that businesses should carefully review their eligibility, as assuming exemption status without proper verification could lead to penalties.

The FAQs also offer more clarity when it comes to consolidating revenue and employee count across multiple related or subsidiary companies for the purpose of qualifying for the large operating company exemption. Specifically, L.4 makes clear that the large operating company exemption requires the individual entity to employ at least 20 people, and that entities cannot consolidate employees across multiple entities.

Partnering With Harbor Compliance

According to FinCEN’s estimates, submitting a BOI report can take up to three hours per entity. It’s a time-consuming task, especially if you run a multi-entity organization. If you outsource reporting to us, you can avoid such waste and have peace of mind knowing that a team of experts handles your report.

More importantly, filing the initial report is only the first step of the reporting process. All BOI must be kept current and accurate, so you must continually be on the lookout for changes in your company’s ownership structure and beneficial owners’ information. To make updates effortless, with Harbor Compliance’s BOI Reporting Service :

1. We send you automated periodic reminders to check if your BOI needs to be updated, so you don’t need to worry about the threat of unreported changes.
2. When any relevant information is changed, we submit an updated BOI on your behalf, sparing you the hassle of doing so independently.

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