New BOI Federal Reporting Requirement Includes Many Small Companies

In 2021, the U.S. Congress passed the Corporate Transparency Act. This law contains a requirement for corporations to report information on their owners to the Federal Financial Crimes Enforcement Network (FinCEN) as part of the federal government’s “efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.” The report, called a “Beneficial Ownership Information” report (“BOI”), must be filed by existing businesses by January 1, 2025. 

This law’s coverage is broad. It applies to all corporations and limited liability companies created in the United States and foreign companies registered to do business in any state or Indian tribe. Twenty-three types of entities are exempt from the reporting requirements; this list includes some tax-exempt entities and certain large operating companies. 

A company covered by this reporting requirement must report information about the company and potentially two categories of individuals: beneficial owners and company applicants. A beneficial owner is any individual who, directly or indirectly, owns or controls at least 25% of the ownership interests of the company or exercises substantial control over the company. Some companies will also need to report a company applicant — an individual who directly filed or is primarily responsible for the filing of the document that creates or registers the company. 

Reports are filed electronically using FinCEN’s secure filing system. You can find more information on the exemptions, definitions, and procedures for BOI reporting in FinCEN’s Small Entity Compliance Guide and on its website. 

Please note that a federal court in Alabama has determined that the Corporate Transparency Act is unconstitutional and has prohibited FinCEN from enforcing the law against the plaintiffs who challenged it, which includes the National Small Business Association. The Justice Department has appealed this ruling. While the appeal is pending, FinCEN will not enforce the law against companies who were members of the National Small Business Association as of March 1, 2024; the law remains in effect for all other covered companies.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.