Reporting Beneficial owners for US companies

Similarly to what is now obligatory for federal and certain provincial corporations many US legal entities will need to report what is referred to as their beneficial ownership information (BOI) in a BOI report.

These new regulations affect a wide range of entities so if you own or know someone that owns any kind of US entity you may want to read up.

These new rules, which will be examined in the following, mandate you to submit a BOI report to the Financial Crimes Enforcement Network (FinCen). This agency is part of the US Department of the Treasury whose job is to analyze financial transactions in order to prevent financial crimes.

Who Needs to Report: Understanding Affected Entities

In order to properly comply with the reporting requirements, you first need to understand which entities are affected under these new rules. There are two categories of entities that are affected by these rules.  The first being domestic reporting companies. This can include a c- corporation, U.S. L.P., LLC or other legal entity created by filing documents with the secretary of state of an American jurisdiction and registered to do business in the US. The second are foreign reporting companies. This can include a corporation or other entity formed through the law of a country other than the US and who then registered to do business in the US. An example of this could be a corporation that was incorporated in Quebec or Ontario that does business in the US.

What Information Must Be Reported

Entities that fall under either of these categories are called “reporting companies” and need to file a BOI report. With regard to the specific information that they are required to submit, a reporting company needs to file its legal name, US address, jurisdiction of foundation, ITN(Taxpayer Identification Number) issued by the IRS.

Defining Beneficial Owners and Their Reporting Obligations

Furthermore, reporting companies will need to determine who its beneficial owners are and report separate information regarding these individuals. Beneficial owner is a legal term that has become quite popular with legislators in different jurisdictions with, similar yet different definitions. The aim is to have more transparency as to who actually controls and/or benefits from the reporting company.

The term beneficial owner under this rule refers to two types of individuals. It can be an individual who either directly or indirectly exercises “substantial control” over a reporting company or owns at least 25% of the “ownership interest” of a reporting company.

The term substantial control means a person(s) that is a senior officer, has the power to appoint a senior officer or has the power to make important decisions as it relates to any facet of the reporting company.

Ownership interest can include for example, owning stocks, equity or possessing voting rights that if present, passed the 25% threshold represent ownership interest that needs to be reported.

Therefore, if you fit in these two categories, you are a beneficial owner of a reporting company which needs to be reported, in addition to the information about the reporting company itself. Concerning the beneficial owners of these reporting companies, they would need to report: their full legal name, date of birth, residential address and a valid piece of identification.

Also, reporting companies need to submit information regarding the “company applicant”. This means the person who filed the documents for the creation of the reporting company. It can also include the person who directed another person to file these documents. There are, however, exemptions to this requirement depending on when the entity was formed.

Reporting companies created on or after January 1, 2024 are required to report company applicants. However, reporting companies created before January 1, 2024 are exempt from this obligation.  When it comes to the information needed from the company applicant it is the same requirements as for the beneficial owners.

Deadlines and Exemptions for Compliance

The deadline for submitting a report depends on when the reporting company was created or registered to do business in the US. Entities already in existence before January 1, 2024 will have until January 1, 2025 to submit a report. Whereas, entities that were created or registered in the US between January 1, 2024 and January 1, 2025 will have 90 days to produce the report.  Lastly, reporting companies created or registered in the US on or after January 1, 2025 will have 30 days to submit the report.

Maintaining Accuracy: Updates and Corrections

In the event of changes occurring within the reporting company, after a reorganization or merger, for example, the information provided to FinCen needs to be updated by way of an updating report. The deadline for submission of this update is 30 days after the change in the information took place. Additionally, should an entity submit incorrect information, it would have 30 days from the discovery of the inaccuracy to submit a corrected report.

To conclude, if you own a legal entity in the US or do business in the US these new regulations need to be taken into consideration at its inception and anytime subsequently where a change occurs.

If you believe you may be impacted by these rules and wish to determine your obligations accordingly, we invite you to consult with one of our professionals at Levy Salis LLP to learn what your legal responsibilities are. Our team will offer you its expertise in providing a comprehensive analysis and assist you in determining and implementing the best strategy for you.