In September of 2022, the United States Financial Crimes Enforcement Network (FinCEN) published a rule that generally requires all legal entities to register their owners with the federal government. By way of background, entities such as Corporations, Limited Liability Companies, Limited Partnerships, and others tend to be created by statute by individual States. Colorado, like most states, does not automatically require that the owners of an entity be disclosed. You may recall from your filings with the Colorado Secretary of State that the Colorado government typically only asks about the incorporator, registered agent, and a few other key pieces of information, usually not including the identity of the shareholders, members, partners, or owners.
FinCEN believes that this is a problem from the perspective of federal law enforcement and so it created a reporting requirement. They intend to construct a database of all beneficial interest owners of entities to be available in a secure, non-public database for use by national security, intelligence, law enforcement, regulators, and financial institutions.
The Corporate Transparency Act was signed into law in January of 2021 and expanded anti-money laundering laws including a requirement that beneficial interest owners disclose their identities. 31 U.S.C. § 5336. But, it has taken a while for FinCEN to publish rules enacting the same. Those rules finally went into effect on January 1, 2024.
The rules require all domestic and foreign “reporting companies,” which includes the usual entities created by filing a document with the Colorado Secretary of State such as corporations and LLCs. Some specific kinds of entities including insurance providers, banks, some securities providers, tax-exempt entities, public utilities, and others are exempt. Also, larger companies with more than twenty full-time United States employees, an operating presence at a physical office within the US, and (c) more than $5,000,000 of US-sourced gross receipts reported on its prior year federal income tax return might also be exempt.
Non-exempt entities are required to disclose all “beneficial owners,” meaning anyone (1) owns or controls at least 25 percent of the ownership interests of a reporting company; or (2) exercises substantial control over a reporting company. Individuals with substantial control are those with substantial influence over important decisions about a reporting company’s business, finances, and structure. Senior officers (president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members. There is no requirement that these individuals have actual ownership in the company to be considered a beneficial owner for reporting purposes. For each, the disclosure must include the individual’s full legal name, date of birth, street address and a unique ID number (such as a driver’s license or passport).
If a beneficial owner is itself another entity, then that entity may have to report its own individual owners, in turn. There are nuances here regarding wholly owned subsidiaries, when the owner company is itself exempt, and others. These are beyond the scope of this letter but if you are in a situation where your company is owned by other companies, you should seek legal advice concerning whether and how to identify and report the owners.
The deadline for this report depends on when the entity was formed. For domestic companies formed after January 1, 2024, the report should be filed within ninety (90) days of formation. Fed.Reg. Vol. 88, No. 229 (Nov. 30, 2023). For those previously in existence, such as your company, the report should be filed by January 1, 2025. Foreign companies have their own deadlines. Failure to comply with this disclosure requirement can result in criminal or civil actions including a per-day fine of up to $500.00 or two years imprisonment. 31 U.S.C. § 5336(h)(1) and (3)(A).
Beneficial Ownership Reports must be filed electronically. FinCEN’s e-filing portal, available at https://boiefiling.fincen.gov/, provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online, or (2) by uploading a completed PDF version of the BOI report. Some third-party service providers may also offer the ability to file the BOI report through their software. The person who submits the BOI report will need to provide their name and email address to FinCEN. There is no fee for filing the report.
If you have any questions about these new reporting rules and how they affect your business, please give one of our experienced Denver Business Attorneys a call.
Additional information about FinCEN’s view of the new regulation can be found online at https://www.fincen.gov/boi-faqs, a Frequently Asked Questions (FAQ) document on the FinCEN website.