Updated: Aug 12
On December 7, 2021, FinCEN released a notice of proposed rule-making for the BOI. This release covers who must file a BOI report, what information will be required, and when filings are required for new or existing companies. The BOI is one of three implementing regulations or changes for the Corporate Transparency Act (CTA). In this blog post we’ll run through some frequently asked questions on the proposed BOI.
Who is required to be identified by a reporting company? The regulation expects information to be filed on the company (new or existing), beneficial owners of the entity, and individuals who have filed an application with specified government or tribal authorities to form or register a company to do business.
What is a reporting company?
A domestic reporting company is any entity that is created by the filing of a document with a secretary of state or similar office of a jurisdiction within the United States. A foreign reporting company is any entity formed under the law of a foreign jurisdiction that is registered to do business within the United States.
When must an existing company file BOI Information? A newly formed company?
The proposed rule requires existing reporting companies to provide BOI information within a timely manner and no later than one year from the effective date of the regulation. After the effective date, newly formed entities will be required to file BOI information at formation.
After the initial filing, the rule proposes reporting companies will be required to file changes in beneficial ownership information within 30 days of the change.
What information must be reported?
The reporting company must report its name and any alternative names through which the company is engaging in business, its business street address, its jurisdiction of formation or registration, as well as a unique identifier.
Company applicants and those acting as a corporate or formation agent submit to FinCEN on behalf of the reporting company each beneficial owner and company applicant, the individual's full legal name, date of birth, current residential or business street address, and either a unique identifying number from an acceptable identification document ( e.g., a passport) or a FinCEN identifier.
The street address used should be that used for tax residency purposes. The unique identifier described should be a TIN (including an employer identification number (EIN)) or where a reporting company has not yet been issued a TIN, a Dun & Bradstreet Data Universal Numbering System (DUNS) or a Legal Entity Identifier (LEI).
What is a beneficial owner?
A beneficial owner includes any individual who (1) exercises “substantial control” over a reporting company or (2) owns at least 25 percent of the ownership interests of a reporting company.
What is substantial control?
The proposed regulation lists the following as specific indicators of substantial control:
Service as a senior officer of a reporting company
Authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company
Direction, determination, or decision of, or substantial influence over, important matters of a reporting company.
There is also a catch-all provision “any other form of substantial control over the reporting company”.
It is important to know that substantial control can be exercised directly or indirectly and entities can report all persons in substantial control, rather than just choosing one. The proposed definition diverges from the current customer due diligence (CDD) rule, where substantial ownership was identified through the “control prong”. This is one reason the CTA mandates FinCEN rescind and revise portions of the CDD rule to conform with the CTA.
Will my financial institution have accessibility to this information?
We expect this information to be accessible to a financial institution given the customer or potential customer provide consent to retrieve the information from FinCEN. Details on accessibility and data security will be detailed in a separate notice of proposed rule-making.
At this time, there appears to be no intention to remove BOI collection requirements from financial institutions. The current fear many bankers have regarding the upcoming changes reside around the potential burden of collecting additional BOI (i.e. “substantial control” definition expansion to include more than one individual) and the potential requirement to validate the collected BOI against FinCEN’s official database. There will be more to come on this topic with additional BOI proposals pending. Stay tuned for more information as it unfolds.