Corporate Transparency Act – FinCEN Beneficial Ownership Information Reporting Requirements 

As of January 1, 2024, U.S. domestic small businesses are required to report the individuals who indirectly and directly maintain “ownership and control” over the entity to the U.S. Treasury Financial Crimes Enforcement Network (“FinCEN”).

The mission of the Financial Crimes Enforcement Network is to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.

This Beneficial Ownership Information (“BOI”) Reporting Rule encompasses corporations and limited liability companies and includes two categories of disclosure: Beneficial Owners and Company Applicants.

A Beneficial Owner is defined as an individual who owns or controls at least 25 percent of equity in a company or someone who has “substantial control” over the company.

A Company Applicant is defined as the individual who directly files (incorporator/organizer) or the individual who is primarily responsible for the filing of the document that creates or initially registers the company in the corresponding state.

There are 23 Exemptions which discharge an entity from these reporting requirements.

How and When to File – BOI Reports are to be Filed Online and Within a Phased Approach

BOI reports must be filed electronically using FinCEN’s secure filing system.

There are three phases for compliance with the BOI reporting requirements, depending on when the entity was initially registered with their respective Secretary of State office:

• 365 Days – Entities registered before January 2024 must file a BOI report by January 1, 2025.
• 90 Days – Entities registered after January 1, 2024 during calendar year 2024, must file a BOI report within 90 calendar days after actual or public notice (whichever is earlier) of their company’s effective registration.
• 30 Days – Entities registered after January 1, 2025 must file a BOI report within 30 calendar days from their receipt of actual or public notice of the company’s effective registration.

A Beneficial Owner Either Exercises “Substantial Control” or Owns/Controls at Least 25% of the Reporting Company

A Beneficial Owner is any and all individuals who, directly or indirectly:

1. Exercises “substantial control” over a reporting company, and/or
2. Owns or controls at least 25 percent of the ownership interests of a reporting company.

Though required to report multiple beneficial owners if applicable, a reporting company is not required to distinguish the reason for the required reporting of that individual (i.e., substantial control vs ownership interests).

An individual exercises “Substantial Control” when an individual meets any of four general criteria:

1. The individual is a senior officer,
2. The individual has authority to appoint or remove senior officers or a majority of directors of the reporting company,
3. The individual is an important decision-maker (i.e. decisions regarding business, finances, or structure of the entity); or
4. The individual has any other form of substantial control over the reporting company.

The “25% Threshold for Ownership Interest” can consist of any instrument, mechanism or contract used to establish ownership (i.e. equity, stock, or voting rights whether or not anything needs to be paid to exercise the conversion).

1. There are FIVE Exceptions from the Definition of Beneficial Owner That Exempt Them From Reporting.
2. Minor child – If the beneficial owner is less than 18 years of age at time of reporting, the reporting company may instead report information about the parent or legal guardian of the minor child. Once the owner has reached the age of majority, the reporting exception no longer applies;
3. Nominee, intermediary, custodian or agent;
4. Employee – this individual would not be a senior officer, but someone who is solely an employee;
5. Inheritor – if this beneficial owner holds a future interest in a company, they are not required to be reported until that interest has vested; and
6. Creditor.

All Entities Formed Post January 1, 2024 Must Report the Company Applicant(s)

Reporting companies filed post January 1, 2024 are required to report their company applicants.

The Company Applicant 1 is the individual who directly filed the creation or first registration document for the reporting company with the secretary of state or similar office (incorporator/organizer).

If necessary, the Company Applicant 2 will be named as the individual who is primarily responsible for directing or controlling the filing of the creation or first registration document.

What Specific Information Does My Company Need to Report in the BOI Report?

Reporting Company Reporting Information

1. Full Legal Name
2. Any trade name or DBA name
3. Complete US address
4. State, Tribal or feign jurisdiction of formation
5. IRS Taxpayer Identification Number (TIN) (including an EIN)

Each Beneficial Owner and Company Applicant

1. Full Legal Name
2. Name of Birth
3. Complete current address – residential street address, except for company applicants, report the business street address.
4. Unique identifying number and issuing jurisdiction from, and image of one of the following:
   1. U.S. Passport,
   2. State driver’s license,
   3. ID document issued by a state, local government or tribe or
   4. Foreign passport.

For ease of processing, if available, FinCEN Identifiers for Individuals and Reporting Companies May Be Utilized in Lieu of submitting the above information for BOI Reporting.

30 Day Compliance Window for Any Changes or Inaccuracies in Reported Information.

If there are any changes to the required information provided in a BOI report about your company or its beneficial owners, reporting companies have 30 days from the date on which the change occurred to file an updated BOI report.

Any reported inaccuracies must be changed no later than 30 days after the date your company becomes aware of the inaccuracy or had reason to know of it. There is a 90 day safe harbor from penalties.

Failure to Report BOI in the Required Timeframe May Result in Civil and Criminal Penalties.

An individual person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN.

Additionally, individuals who qualify as owners cannot simply refuse to provide the required information without repercussions. Senior officers of an entity that fails to file a required BOI report may be held personally accountable for that failure.

The willful failure to report complete and accurate beneficial ownership information to FinCEN may result in a civil or criminal penalties, including:

• civil penalties of up to $500 for each day that the violation continues, or
• criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.

If you have questions about the Corporate Transparency Act and how it impacts your business, contact our experienced Cannabis, CBD & Hemp Business Law Firm in California, Manzuri Law.