From the SEMA Washington, D.C., office
A late-breaking legal development is temporarily delaying a new federal filing requirement for small businesses to report their beneficial ownership, the deadline for which was fast approaching.
Most small businesses have until December 31, 2024, to file a new, required report with the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) on their organization’s beneficial owners. Beneficial ownership information (BOI) reports are a requirement under the Corporate Transparency Act (CTA), a 2021 federal law to enhance transparency in entity structures and ownership to combat money laundering, tax fraud and other illicit activities.
However, a federal district court in Texas issued an order granting a nationwide preliminary injunction, putting the FinCEN BOI Reporting Rulemaking on hold. The federal government has subsequently appealed the decision.
Reporting companies may continue to voluntarily submit beneficial ownership information reports, even as this litigation continues.
While this lawsuit is pending, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, small businesses are not currently required to file their beneficial ownership information with the agency and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Accordingly, small businesses are not required to file.
However, should the injunction be lifted, FINCEN may require entities to file. The earliest date that entities would be required to file is the initial deadline of January 1, 2025. While litigation is impossible to predict with absolute certainty, it is unlikely that a court will overturn the injunction before the holiday season. SEMA and PRI members do not need to act on the rule for the time being.
SEMA/PRI attorneys continue to closely monitor this litigation and will promptly let you know of any updates.
The CTA imposes reporting obligations on all business entities within the scope of the "reporting company" definition under the statute.
Beneficial Ownership Rule Filing Requirements
Small businesses can be exempted from filing a report with FinCEN if they meet the following three criteria:
- Employ more than 20 employees
- Operate a physical office in the United States
- Filed federal tax returns demonstrating more than $5 million in gross receipts or sales
The CTA defines a "beneficial owner" as an individual who, directly or indirectly, exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of the reporting company. An individual exercises "substantial control" over an entity if the individual:
- Serves as a senior officer
- Has authority over the appointment or removal of a senior officer or a majority of the board of directors
- Directs, determines or has substantial influence over important business decisions
Beneficial ownership information reporting is not an annual requirement. Businesses only must file a report with FinCEN once, unless the filer needs to update or correct information about their company’s beneficial ownership. Generally, reporting companies must provide four pieces of information about each beneficial owner:
- Name
- Date of birth
- Address
- The identifying number and issuer from either a non-expired U.S. driver's license, a non-expired U.S. passport or a non-expired identification document issued by a State (including a U.S. territory or possession), local government or Native American tribe. If none of those documents exist, a non-expired foreign passport can be used. An image of the document must also be submitted.
Companies must also submit certain information about themselves, such as their name(s) and address. In addition, reporting companies created on or after January 1, 2024, must submit information about the individuals who formed the company ("company applicants").
Filers can also view informational videos and webinars, find answers to frequently asked questions, connect to the contact center and learn more about how to report at www.fincen.gov/boi. Also, SEMA member companies can listen to a webinar on the BOI reporting requirements. There is no charge for SEMA members, as the association is a member of the Small Business Legislative Council (SBLC), which hosted the webinar.
For more information, contact Eric Snyder, SEMA's senior director of federal government affairs, at erics@sema.org.
