If you have a law firm in the U.S. with fewer than 20 full-time employees, you’re required to file a Beneficial Owners Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN), aka the federal government, by January 1, 2025. Failure to comply with this new law could result in steep penalties.
Table of contents
- What Is This New Law?
- Do Only Law Firms Have to File a BOIR?
- What Information Does FinCEN Need About the Company?
- Who Is a Beneficial Owner?
- How Hard Is It to File a BOIR?
- What’s the Deadline for Filing Your Company’s BOIR?
- When Do You Need to File an Updated BOIR?
- Where Can You Get More Information About Filing a BOIR?
What Is This New Law?
This new requirement is part of the Corporate Transparency Act (CTA). I suspect this law was passed to identify people who use shell companies to commit crimes or identify people who do this.
Do Only Law Firms Have to File a BOIR?
No. This law impacts most small businesses in the U.S. with fewer than 20 full-time employees. If you haven’t heard about it, you’re not alone. Over 33 million businesses are expected to be required to file a BOIR, but at the last update I heard, only about 3 million had filed their BOIRs to date.
When I talk to fellow entrepreneurs, less than 50% of them are aware of this requirement. None of the other lawyers at my firm knew about it when I asked them. I help my clients file the articles for new business entities, and now, as part of that service, I require my clients to engage me to file their BOIR for them or have a plan to get their BOIR filed before I will file the articles with the state.
What Information Does FinCEN Need About the Company?
The company needs to provide the following information on its BOIR:
- Its legal name
- All d/b/a (doing business as)
- Its employer identification number (EIN) or tax identification number (TIN)
- The state where the company was initially formed
- The primary address from which it operates in the U.S.
The company’s primary address must be a street address, not a mailbox. So, if your firm’s official address is a box at a UPS Store or at a virtual office, but you actually work from your home office, the company’s primary address is your home address.
Don’t worry, the database of BOIR information is not public. When I do a BOIR, I double-check the address clients give me to make sure it’s not a mail service or virtual office.
Who Is a Beneficial Owner?
A beneficial owner is someone who owns at least 25% of the company or has substantial control over the company.
It’s important to note that only humans can be beneficial owners. If the company is owned by another LLC or a trust, you have to work backward until you identify the people who control the company or own at least 25% of it.
What Is “Substantial Control?”
A person who has substantial control over the company could include, but is not limited to, the company’s senior officers (e.g., anyone whose title starts with “chief”), board of directors, and the company’s internal general counsel.
Ooohhh … this just got a lot more complicated.
If a law firm has more than four equal partners (so each person owns less than 25% of the company), but some company decisions require a unanimous or majority vote of all the partners, that means that all the partners have substantial control over the company and should be listed as beneficial owners.
FinCEN has useful information that could help you determine who is a beneficial owner of your company.
Filing a BOIR reminds me of going through character and fitness. There’s no penalty for claiming someone as a beneficial owner who turns out not to be one, but penalties can apply if you don’t include someone who is a beneficial owner on your BOIR. When in doubt, include the person on your report.
If You Live in a Community Property State, Could a Lawyer’s Spouse Be a Beneficial Owner?
It’s possible, even if it’s against the rules in your state for a non-lawyer to be an owner of a law firm.
If a lawyer is a beneficial owner because they own at least 25% of the firm, is legally married, and the firm is located in one of the nine community property states, then they should probably list their spouse as a beneficial owner as well.
This assumes you do not have a prenup or postnup that excludes your ownership interest in the firm from the marital estate.
Geez, this is starting to sound like a question on a bar exam.
What Information Does FinCEN Need About Each Beneficial Owner?
Here’s what you need to provide for each beneficial owner:
- Their legal name
- Date of birth
- Residential address
- A copy of their unexpired driver’s license, passport or state-issued ID.
Pro Tip: When I filed the BOIR for the firm where I do client work, I did a lap around the office, collected the partners’ driver’s licenses, and scanned them to my computer. Those, plus my 1099, gave me all the information I needed to file the firm’s BOIR. I created a spreadsheet for the firm’s BOIR and highlighted which driver’s license expires first.
That will be important soon. Keep reading.
How Hard Is It to File a BOIR?
It’s not. Once I had my spreadsheet with the company’s and beneficial owners’ information, it took maybe 10 minutes to file the firm’s BOIR.
It was even faster when I filed the BOIR for each of my personal LLCs, of which I am the sole owner.
What’s the Filing Fee for a BOIR?
Zero. $0. Absolutely nothing.
What Are the Penalties If You Don’t Comply With CTA?
The civil penalty is $591 per day, and there’s no upper limit for this fine. The criminal penalty is a fine of up to $10,000 and up to two years in prison.
These penalties will apply to the beneficial owners personally, not to the company.
Oooohhh … that could be bad. I warned you the penalties are steep.
What’s the Deadline for Filing Your Company’s BOIR?
BOIRs are due to FinCEN by January 1, 2025.
This raises two potential red flags:
- A lot of people take off the week between Christmas and New Year’s. It may be difficult to track down beneficial owners to get a copy of their driver’s license or passport.
- At the last CLE I attended on the CTA and BOIRs, the instructor said they expect the FinCEN website will crash during the week between Christmas and New Year’s when everyone who waited until the last minute is trying to submit their BOIRs.
Unless your firm has a beneficial owner whose information will change before the end of the year, it’s better to file your BOIR sooner rather than later.
When Do You Need to File an Updated BOIR?
Once you’ve filed your BOIR, if the company’s or a beneficial owner’s information changes, you have to file an updated BOIR within 30 days. This means if the company moves, gets a new beneficial owner or a beneficial owner leaves, a beneficial owner moves to a new residence, or the driver’s license or passport a beneficial owner used for the BOIR is expired or renewed, you have 30 days to file an updated report with FinCEN.
Oh [swear word]!
That’s 30 calendar days, not business days. If your due date falls on a weekend or holiday, that’s the latest you can file the updated BOIR without risk of penalty.
Remember how I said I created a spreadsheet with my firm’s beneficial owners’ information? Once I filed the firm’s BOIR, I sent a copy of the spreadsheet to the managing partner with the information about whose driver’s license expires first highlighted.
I wish there was a way to track if/when a beneficial owner’s information changes. But so far, the only thing I can think to do is make it a standing item at the owner’s regular meeting and make it someone’s job to touch base with the other beneficial owners on at least a monthly basis.
Pro Tip: Amend your company’s operating agreement and bylaws to state that all beneficial owners must update the company when their residence changes and provide a copy of their driver’s license or passport when it’s renewed. Ditto for the employment contracts for anyone whose role gives them substantial control over the company.
Where Can You Get More Information About Filing a BOIR?
You can check the FinCen.gov site, of course. But also, I wrote a detailed blog post about it with the video I followed when I filed my first BOIR. I’m sending this post to all my clients to remind them of their potential obligation to file a BOIR and help them decide whether to file it themselves or hire someone to do it for them.
Image © iStockPhoto.com.
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