When the Financial Crimes Enforcement Network (FinCEN) first promulgated the Beneficial Ownership Information Reporting Rule (BOI Reporting Rule) pursuant to the Corporate Transparency Act (CTA), the task ahead was daunting as FinCEN estimated that approximately 32.6 million entities would need to report under the proposed rule. But the January 1, 2025, deadline for most companies was far enough in the future that the mission seemed attainable. Nearly three years and several constitutional challenges later, there are less than 45 days before companies must report beneficial ownership information to FinCEN. For companies that have not yet done so, the time to file is now. 

The BOI Reporting Rule requires both foreign and domestic, non-exempt "reporting companies" to provide FinCEN information regarding their beneficial owners and, in some cases, their company applicants, via FinCEN's BOI e-filing website. The BOI Reporting Rule includes 23 exemptions, including but not limited to issuers, banks, Exchange Act registered entities, large operating companies, tax exempt entities, and certain subsidiaries. In determining whether the BOI Reporting Rule’s requirements apply, a company should: (1) assess whether it falls within the definition of a "reporting company" and, if so, (2) determine whether an exemption applies, such that it is exempt from reporting under the Rule.

A beneficial owner is anyone that directly or indirectly exerts "substantial control" over the reporting company or owns or controls at least 25 percent of the ownership interests in the reporting company. Substantial control is defined to include senior officers, those with authority to appoint and remove senior officers or members of the board of directors, those considered important decision-makers, and anyone who exercises any other form of substantial control. FinCEN has said that it expects every reporting company to report at least one person who exercises substantial control over the reporting company. 

For many companies, it is relatively simple to determine that the company is exempt such that it does not have to report. For many non-exempt entities – such as sole proprietorships – beneficial ownership is straightforward, and reporting is a simple process. But for non-exempt entities with complicated ownership entities, reporting beneficial ownership requires a more in-depth analysis. FinCEN published over 100 frequently asked questions (FAQs) to help companies analyze their reporting obligations. 

With less than 45 days left to report, we discuss below common issues we have seen when analyzing reporting obligations. 

1. Large Operating Companies: Large operating companies are exempt if they have more than 20 full-time employees, operate at a physical office in the U.S., and have more than $5 million in gross receipts or sales as reported on their previous year's tax returns. For an affiliated group of corporations that files a consolidated return, the gross receipts or sales is the amount reported on the consolidated return for the entire group. However, in order to qualify for the exemption, each individual entity must meet the other requirements for the exemption – i.e., operating at a physical office in the U.S. and more than 20 full-time employees. In other words, in a large consolidated group, if one entity serves only as a holding company and does not employ any employees, that entity would not qualify for the large operating company exemption. 
2. Subsidiaries: The BOI Reporting Rule exempts from reporting "any entity whose ownership interests are controlled or wholly owned, directly or indirectly, by one or more" enumerated exempt entities. FinCEN published FAQs interpreting the regulation to exempt only subsidiaries that are wholly controlled or wholly owned by exempt entities. Therefore, an entity that is primarily controlled by an exempt entity but leaves some form of control to a minority shareholder that is not exempt is likely not exempt. 
3. Issuers: The BOI Reporting Rule exempts from reporting any issuer of securities registered under section 12 of the Securities Exchange Act or that is required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act. Under the subsidiary exemption discussed above, subsidiaries of those issuers are also exempt. However, foreign public companies that do not meet either of the aforementioned requirements are not exempt under the issuer exemption. In addition, foreign public companies may not have an operating presence in the U.S. to qualify for the large operating company exemption. As a result, non-exempt U.S. subsidiaries of those foreign public companies may have to register beneficial ownership, including the ownership of parent foreign public companies. 
4. Pooled Investment Vehicles (PIVs): The exemption for PIVs does not apply to PIVs that are advised by exempt reporting advisers, though those PIVs may still qualify for the venture capital fund adviser exemption. In addition, if an entity would be a reporting company but for the PIV exemption and it is a foreign entity, that entity is deemed a reporting company, though the information it is required to report is limited. Specifically, it must only report the individual who has the greatest authority over the strategic management of the entity, not all individuals who substantially control the entity and not any owners.
5. Ongoing Requirement: Reporting is an ongoing process, not a "set it and forget it" obligation. Changes to structure or ownership may require companies to update reports and there are short timeframes to do so. Updated reports must be filed within 30 days of the change, so companies should educate relevant personnel and have systems in place to track BOI changes.

For more information, please contact: 

Ian A. Herbert, iherbert@milchev.com, 202-626-1496

Leah Moushey, lmoushey@milchev.com, 202-626-5896

Peter Kentz, pkentz@milchev.com, 202-626-5891

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