CHICAGO — Federal legislation went into effect earlier this year to combat money laundering and other financial crimes, and requires most small- to mid-sized companies to document who has a hand in their operations by Jan. 1, 2025.
This requirement, which affects almost all drycleaning company owners, is part of the Corporate Transparency Act (CTA). It requires most companies to file what is called a Beneficial Ownership Information, or BOI, report with a federal agency called the Financial Crimes Enforcement Network (FinCEN).
Businesses having to file include:
- Every corporation
- Every LLC
- Every other entity that is created by the filing of a document with the Secretary of State or similar office
There are 23 exceptions for certain corporations, LLCs, or other entities, but active drycleaning businesses created as a corporation or LLC do not qualify for these.
What Information is Reported for BOI?
“All reporting companies have to provide information in their initial report about the company, and about all of their beneficial owners,” says Sandra Feldman, attorney and beneficial ownership information reporting expert with Wolters Kluwer CT Corporation. Reporting companies created on or after Jan. 1, 2024, also must provide information in their application to form a company.
Information about the company in a BOI report includes:
- Full legal name (as it appears in the articles of organization)
- Any trade or DBA name
- Street address of the company’s principal place of business (PPB)
- The state where the company was formed
- IRS Taxpayer Identification Number — This is either the employer identification number (EIN) or social security number if that’s what the company utilizes.
Information necessary for all beneficial owners includes:
- Full legal name
- Date of birth
- Residential street address
- Unique ID number and its issuing jurisdiction (this can include non-expired passports, state IDs or driver’s licenses)
The report also must include an image of the document from which the unique identifying number was obtained.
Who are Beneficial Owners?
According to the FinCEN, beneficial owners are defined as “any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interest of a reporting company.”
Feldman says FinCEN views substantial control by an individual in any one of four ways:
- They serve as senior officer (President, CFO, GC, CEO, COO)
- They are authorized to appoint or remove senior officers or majority of board
- They direct, determine or influence important decisions, such as sale, lease, mortgage of principal assets; reorganization, dissolution, or merger; major expenditures; selection or termination of business lines; compensation and/or incentive programs for senior officers; entering into or terminating contracts; or mending governance documents
- Any other form of substantial control
The last method, Feldman says, is the “catch-all provision, as FinCEN tries to eliminate any loopholes in the definition.”
There are five exceptions to the definition of beneficial owner, Feldman says: “That is, these are individuals who would otherwise be a beneficial owner, but because they qualify for an exception, the reporting company will not report them as beneficial owners.”
These exceptions are:
- Minor children (“However,” Feldman says, “the reporting company has to provide the required personal information of a parent or legal guardian to qualify for this exception.”)
- Nominees, intermediaries, custodians or agent on behalf of the beneficial owner
- Future inheritors
- Employees who aren’t senior officers
- Creditors
Where and How to File
So, once a business owner knows they need to file a BOI, where and how does this happen?
“All BOI reports are filed electronically with FinCEN,” Feldman says. “There is no state filing. You only file with FinCEN. There is no fee, and anyone the reporting company authorizes to act on its behalf can file the report.”
For those who file on their own behalf, Feldman says they can go to the BOI e-filing portal, located on the FinCEN website (https://www.fincen.gov). “When you go to the portal,” she says, “you will see a couple of options. You can download a PDF, fill it out and then upload it and submit it to FinCEN, or you can use their web-based version, fill the report out online and then submit it.”
There is also the option of using a third-party service provider, who will take the information and submit it on the company’s behalf. While these providers will charge a fee, potential advantages to this, Feldman says, include simplified data collection and confidence in the filing. “It’s an option you should at least investigate before filing your company’s initial report,” she says.
“However you choose to file your report, you’ll notice that there’s just one BOI report form,” Feldman says. “There aren’t separate forms for initial, updated or corrected reports. You’ll be asked to check a box indicating whether you’re filing an initial report, correcting a prior report, updating a prior report, or if you’re reporting that your company is newly exempt. And when you file an update or correction, you have to complete the entire BOI report form. You don’t just provide the updated or corrected information — you resubmit all the information.”
Violation and Penalties
So, what are the penalties for violating this new requirement, and what are considered violations?
“Violations include willfully failing to file a complete initial, updated or corrected BOI report,” Feldman says, “and willfully filing or attempting to file false or fraudulent beneficial ownership information.”
Potential penalties include a civil penalty of up to $500 for each day the violation continues. Criminal penalties of up to two years imprisonment and a fine of up to $10,000.
“Both individuals and reporting companies can be held liable,” Feldman says, “and individuals can be held liable if a reporting company failed to report complete or updated beneficial ownership information, and that individual either caused the reporting company’s failure or was a senior officer at the time of the failure.”
For more information, Feldman suggests the CTA/BOI reporting resources page at https://www.fincen.gov/boi. “They have a lot of really good resources, including a small entity business guide, FAQs and videos.”
Have a question or comment? E-mail our editor Dave Davis at [email protected].
