BOI Report Requirements: New 2024 Businesses and Rentals

The Corporate Transparency Act (CTA) enacted in 2021 adds this entirely new 2024 online federal filing requirement when most small business corporations and LLCs file with their secretaries of state.

Under this requirement, you file the following two reports at the same time with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN):

1. A “beneficial owner” information report (BOI report)
2. A company applicant information report

This new federal filing is totally separate from state and local filings. From now on, determining whether this filing is required, and completing it within the deadline, must become a routine part of forming most new corporations and LLCs.

Here’s a step-by-step approach:

Step 1: Is Your Entity a Reporting Company?

The CTA applies only to “reporting companies.” If the entity you’re forming is not a reporting company, you don’t have to worry about the CTA.
Unfortunately, almost all small businesses are reporting companies.
Subject to some significant exemptions, the CTA applies to business entities that are formed by filing a document such as articles of incorporation or organization with a secretary of state office or similar official.

This includes:

• LLCs
• corporations
• limited partnerships in most states, and
• limited liability partnerships.

Sole proprietors: The CTA does not apply to sole proprietors, because no document need be filed to legally establish a sole proprietorship. You simply start a business you own yourself.

Single-member LLCs: The CTA applies to individual business owners who form one-member LLCs to operate a business, even though that single-member LLC is taxed as a sole proprietorship (a “disregarded entity”). Reason: you must file a document (usually called articles of organization) with the secretary of state to form a one-member LLC, just as you must for multi-member LLCs.

Rental property: Many individuals form LLCs to own their rental properties. The newly formed 2024 LLCs trigger the CTA reporting requirements.

General partnerships: The CTA does not apply to general partnerships, except in a few states such as Delaware where general partnerships must make a state filing to come into existence. In states where the general partnership filing is optional and the partnership makes the filing, it must file the BOI.

Business trusts: Most business trusts are not reporting companies since no government filings are required to create them. But there are exceptions, such as Delaware statutory trusts.

Foreign corporations: The CTA also applies to foreign corporations, LLCs, and other entities that register to do business in the U.S. This is ordinarily done by filing a document with the state’s secretary of state.

Small businesses: Not all LLCs, corporations, or other business entities are subject to the CTA. Its focus is on smaller businesses that are not already heavily regulated by the federal government. FinCEN estimates that of the approximately 5,616,000 new businesses that are formed each year, about 617,894 will be exempt.

The broadest exemption is for “large operating companies.” These are businesses with

• more than 20 full-time employees (those who work more than 30 hours per week),
• $5 million in domestic gross receipts or sales on their prior-year tax return, and
• a physical presence in the U.S.

Newly formed businesses without a prior-year tax return won’t qualify for this exemption. But they could become exempt in future years.

Other exempt entities. In addition, the CTA does not apply to:

• publicly traded corporations and other business entities that issue securities registered with the SEC;
• investment funds, investment advisors, registered broker-dealers, banks, registered money transmitting businesses, credit unions, insurance companies, and registered public accounting firms; and
• tax-exempt non-profits, including Section 501(c)(3) corporations, and Section 527 political organizations.

Any entity wholly owned, directly or indirectly, by an exempt entity is also exempt.

Thus, for example, if a large operating company that is a corporation forms a wholly owned subsidiary corporation, that subsidiary is exempt.

The CTA requires businesses to identify and provide contact information for their beneficial owners. This information is placed in the FinCEN Beneficial Ownership Secure System (BOSS) database for use by law enforcement, the IRS, and other government agencies. FinCEN does not publicly disclose the BOSS information.

The beneficial owners are the human beings who actually own and/or control a reporting company. A beneficial owner can’t be a business entity such as an LLC or corporation. If a reporting company is owned by a business entity, the human owners of that entity must be listed as the beneficial owners, not the entity.

There are two types of beneficial owners:

• The humans who own or control at least 25 percent of the ownership interests in the company
• The humans who exercise substantial control over the company

“Ownership interests” means, for example, an LLC’s membership interests or a corporation’s shares of stock. For most businesses, identifying the beneficial owners is simple. For example, a three-member LLC in which each member has a one-third ownership interest has three beneficial owners.

Likewise for a four-shareholder corporation in which each shareholder owns 25 percent of the corporate stock.

For reporting companies with complex ownership structures, determining the 25 percent-or-more owners can be more difficult. All types of ownership interest must be compared with all outstanding ownership interests. For LLCs or limited liability partnerships, the 25 percent owners are determined by comparing an individual’s capital or profits interest with the total outstanding capital and profit interests of the entity.

But there is a default rule: any individual who owns or controls 25 percent or more of any class or type of ownership interest of a reporting company is deemed a beneficial owner.

Things can get even more complicated if there are individuals who don’t own a 25 percent-or-more interest but who exercise substantial control over the company. For example, if an LLC has a manager who owns less than 25percent of the LLC, that person would still be a beneficial owner because the LLC’s manager exercises substantial control over the entity.

Substantial control. The definition of “substantial control” is breathtakingly broad. It includes:

• senior officers—a corporation’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who performs a similar function (typically not secretary or treasurer);
• individuals who have authority over appointment or removal of senior officers or directors of a corporation or the managers and members of an LLC;
• individuals who direct, determine, or have substantial influence over important decisions—for example, entering into new lines of business; reorganizing, dissolving, or merging the company; selling principal assets; incurring substantial debt; determining compensation for senior officers; and amending any governance documents; and
• any other person who has substantial control (direct or indirect) over the company.

For companies with complex ownership or governance structures, it may be necessary to review the governing documents to determine all the individuals with substantial control. These may include corporate bylaws, LLC operating agreements, and any other documents that grant special voting rights, such as shareholder agreements.

And even this may not be enough because, even in the absence of a formal written document, substantial control may be exercised through informal understandings or relationships.

A good rule of thumb: if you’re not sure whether a person exercises substantial control but the person might do so, list the person in the BOI report.

Exemptions: Individuals who would otherwise qualify as beneficial owners may be omitted from the BOI report if they are

• minor children (provided their parent or legal guardian is listed);
• individuals acting as a nominee, intermediary, custodian, or agent on behalf of another individual(provided the individual for whom the agent or nominee acts is listed);
• employees other than senior officers;
• heirs of company owners; or
• creditors of a reporting company, unless the creditor is a beneficial owner based on substantial control or ownership or control of 25 percent or more of the ownership interests.