Compliance Alert: BOI Reporting Requirement is Now in Effect

A new reporting requirement for people with ownership interest in a Limited Liability Company (LLC) or other types of corporate entities went into effect on Jan. 1, 2024.

Known as Beneficial Ownership Information (BOI), this reporting requirement has been in the works for years. According to the U.S. Financial Crimes Enforcement Network (FinCEN), the goal is “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 rules require affected entities to report identifying information about their beneficial owners. Not surprisingly, given the nefarious activities the reporting is supposed to expose, there is a draconian civil and criminal penalty regime triggered by willful disregard of these obligations: $500 per each day of noncompliance (civil), and up to two years imprisonment and $10,000 (criminal). In short, meeting the BOI requirement should move to the top of your priority list.

Who Must Report

The initial reporting requirement applies to any domestic legal entity, regardless of tax treatment, created by the filing of a document with a secretary of state or any similar office. This includes LLCs and other corporate entities created for the purpose of asset protection. Foreign entities are also captured if they’re registered to do business in any state through the filing of a document with the secretary of state or similar office.

Corporate entities where either the U.S. government already has ample ownership information or the likelihood of the entity housing illicit activities is viewed as low are exempt from the requirement. This includes public companies, regulated insurance companies, regulated banks, and large operating companies that meet an extensive list of qualification criteria.

Who is a Beneficial Owner?

According to FinCEN, a beneficial owner includes two categories of individuals:

1. Those holding or controlling 25% or more of the entity’s ownership interests; and

2. Those in substantial control of the entity.

The concept of “substantial control” is broadly defined to identify where individuals exert either direct or indirect control of an entity.

BOI Reporting Timelines

Due dates for these filings are being phased in over the course of 2024. Entities in existence before 2024 will have until Jan. 1, 2025, to file their initial reports. Entities formed during 2024 will have 90 days after their formation to file, while entities formed after 2024 will have just 30 days. As changes to BOI occur, reporting entities will be expected to report the revised information within 30 days.

Not a Done Deal

Though the new BOI reporting requirement is now in effect, a trial court recently ruled that the requirement is unconstitutional. In the case of National Small Business United vs. Yellen, U.S. District Court for the Northern District of Alabama, decided on March 1, 2024, the court, in a 53-page decision, on cross motions for summary judgment, held that the Corporate Transparency Act was unconstitutional.

Though this ruling makes the future of the BOI reporting requirement uncertain, it does not remove the requirement to report because the ruling is not a final judgment.

BOI Reporting Requirement: What to Do Now

If you own an LLC or have an ownership interest in an LLC of at least 25%, use this link to report your ownership interest to be in compliance with this law.

The reporting process isn’t difficult. It takes about five minutes. The process includes uploading a picture of your driver's license and reporting either your Employer Identification Number (EIN) or your Social Security Number if you don't have an EIN for the entity.

Remember, if your LLC or corporate entity was in existence before Jan. 1, 2024, you have until Jan. 1, 2025 to report your ownership interest. If your entity was created after Jan. 1, 2024, you have 90 days from the date of formation to report.

If you have any questions about how this requirement applies to LLCs and other corporate entities that may be part of your asset protection plan, please call Kimbrough Law at 706.850.6910.