Happy Thanksgiving!
First, I want to thank all of you for being loyal readers of this newsletter.
This holiday is a time to reflect on what truly matters: family, friends, and the memories we create with our loved ones.
Keeping our financial lives in order is important as we pause to enjoy good food and great company.
Many of us invest through entities like LLCs or partnerships, and a new compliance requirement may impact these structures before the end of the year.
Most Investors Have Registered Entities
Whether you’re investing through an LLC, corporation, or partnership, these structures provide benefits like tax efficiency, liability protection, and easier asset management.
However, with the FinCEN Beneficial Ownership Information (BOI) reporting requirement, nearly all U.S. registered entities must file new information, even if they’re purely investment-focused.
Who Needs to File?
FinCEN’s BOI filing applies to most small and medium-sized entities, with few exceptions. There are 23 exemptions, grouped into eight categories, such as:
- Large Operating Entities: Businesses with over 20 employees, over $5 million in revenue, and a U.S. office.
- Inactive Entities: Formed before Jan 1, 2020, with no assets or business activity (check caveats).
- Publicly-Traded Companies: Already reporting to the SEC.
Other exceptions include government authorities, tax-exempt organizations (e.g., 501(c)), public utilities, and certain financial services firms, such as banks, credit unions, broker-dealers, and investment companies registered with the SEC.
These exemptions won’t apply to most small investors, and International businesses registered in the U.S. must file if they conduct business here.
The rule primarily affects LLCs, corporations, and limited partnerships with fewer than 20 employees or under $5 million in annual revenue.
What Information Must Be Reported?
The filing requires the following details:
- Your entity's legal name and any DBAs (Doing Business As names).
- The business address.
- The state where the entity was formed or registered.
- The entity’s IRS Taxpayer Identification Number (TIN).
- Information on Beneficial Owners, including their:
- Full name.
- Date of birth.
- Residential address.
- A valid government ID (e.g., driver’s license or passport).
Who Qualifies as a Beneficial Owner?
A Beneficial Owner is anyone who:
- Exercises substantial control over the business (e.g., senior officers like a CEO or board members).
- Owns 25% or more of the business.
Exceptions include minor children, non-senior employees, creditors, nominees, agents, or inheritors.
Substantial control includes appointing or removing officers, board representation, or director-level powers.
Ownership includes equity, voting rights, profit interests, or even rights tied to convertible instruments.
When Do You Need to File?
The timeline depends on when your entity was formed:
- Entities formed before January 1, 2024: File by December 31, 2024.
- Entities formed in 2024 or later: File within 90 days of formation or 30 days for 2025 and forward.
- Any ownership or control changes: File updates within 30 days of the change.
These deadlines can be challenging for small businesses with frequent leadership or ownership transitions.
How to File
FinCEN has launched an online portal to handle BOI submissions.
Entities formed in 2024 or later must disclose the person responsible for filing formation documents with the state.
This applies even if the entity is purely for investing.
What Happens if You Don’t Comply?
The penalties for non-compliance are significant.
Failure to file could result in a fine of $500 per day, up to $10,000 per filing, and, in extreme cases, jail time.
These fines can pile up quickly for small businesses, and non-compliance will likely be discovered during tax due diligence.
This could cause issues if you sell or merge your entity.
Why This Filing Matters
This rule may seem an overreach to many, especially since most small businesses and investing entities do not commit financial crimes.
Still, FinCEN intends to increase transparency and curb misuse of business structures.
Staying compliant is not optional for investors managing entities like rental property LLCs or startup funds.
This rule ensures your business activities remain above board and penalty-free.
A Holiday Reminder
As you celebrate Thanksgiving with loved ones, take a moment to reflect on the relationships and blessings that matter most.
At the same time, remember to prepare your business for success in 2024 by meeting FinCEN’s BOI requirements.
Don’t let a missed filing turn into an expensive mistake.
Are you ready to take the necessary steps to ensure your investing entities are compliant?
