Complying with FinCEN’s Beneficial Ownership Information Reporting (BOIR) requirements can be confusing and intimidating; especially if your business operates under a holding or parent company, such as an Anonymous LLC. While trying to comply with FinCEN’s stringent regulations, many small business owners find themselves asking a crucial question: Can an Anonymous LLC be identified as the Beneficial owner for BOIR reporting to FinCEN?
The answer is no, and this blog post will explain why.
Understanding FinCEN
Before we dig deeper, let’s first understand who or what FinCEN is.
FinCEN is short for the US Financial Crimes Enforcement Network, which was established in 1990. Its primary mission is to safeguard the financial system from illicit use, combat money laundering, and promote national security through the collection, analysis, and dissemination of financial intelligence. It is an arm of the United States Treasury Department.
Why Does FinCEN Requires Beneficial Ownership Information Reporting (BOIR’s)?
Congress passed the Corporate Transparency Act (or CTA), that mandates FinCEN administrate and regulate the collection of Beneficial Ownership Information to enhance transparency and accountability among business entities in the United States. The requirement to collect Beneficial Ownership Information is intended to help prevent financial crimes like money laundering, terrorist financing, and fraud. The thought is, by knowing who is behind corporate entities, FinCEN can promote greater due diligence and screening of individuals involved.
What is an Anonymous LLC?
An Anonymous LLC is the term we use to describe a company structure that doesn’t disclose ownership information. This is a type of limited liability company (or LLC) where the ownership details are not publicly available. While most states require disclosure of ownership information, some states (i.e. like New Mexico and Wyoming) do not.
For states that require disclosure of ownership information, we can create a parent/child corporate structure that permits one to operate legally in a state without having ownership information be made public. This works in all states, except Maryland, where they specifically prohibit obfuscation of ownership information.
For BOIR Purposes, What Happens When One Company Owns Another?
This is why, when we discuss FinCEN’s Beneficial Ownership Information Reporting (BOIR) requirements, we talk about Beneficial Owners not just owners. Beneficial Owners is a broader term than just “owner”, and can be very confusing.
There are two types of Beneficial Ownership: direct and indirect. Direct is what you think it is — someone directly owns X% of a company. Indirect is where we think about companies owning other companies — and we look to individuals who “own the owners.” It’s a complex formula, and we wrote a free, anonymous expert system to help you figure this out. For access to this program, go here: https://docs.L4SB.com/start/CTABOIReporting.
Can Anonymous LLCs Be Beneficial Owners?
No company, whether an Anonymous LLC or otherwise, can be a Beneficial Owner in FinCEN’s eyes. Only individuals can be Beneficial Owners.
Understanding the distinction between individual and corporate ownership is essential. It clarifies the rights and responsibilities of both parties. Individuals have personal legal responsibilities, whereas corporations have corporate responsibilities.
Knowing whether an entity or an individual owns a company helps establish clear lines of ownership and control. This distinction is crucial for setting liability standards and impacts risk assessment.
The distinction also affects how regulatory agencies enforce laws. FinCEN, for example, needs to know the individuals behind corporations to ensure compliance with financial regulations.
Beneficial Owners are Owners or Individuals with Substantial Control
Aside from having to report the individuals who have a direct ownership interest in a company (called a “reporting company” for BOIR purposes), you have to report individuals who have “substantial control” over a reporting company, even if they do not have any ownership interest in the reporting company.
FinCEN’s definition of substantial control includes anyone who makes significant decisions on behalf of a reporting company, whether they are direct or indirect owners. This means that if an Anonymous LLC owns another company, the owners of the Anonymous LLC are considered “indirect owners” and must be reported to FinCEN.
Key Reporting Deadlines
FinCEN’s reporting requirements have recently changed. Companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial BOI reports. Companies created or registered after January 1, 2024, have 90 days from receiving notice of their creation or registration to file their initial BOI reports. After January 1, 2025, new companies created will only have 30 days to submit their initial report.
ALL COMPANIES are required to submit updated BOI reports within 30-days of a change to a beneficial owner or the company.
Consequences of Non-Compliance
Complying with FinCEN’s reporting requirements is critical. Non-compliance can lead to severe consequences, including civil penalties, legal action, and even criminal investigations. Non-compliant companies could face increased regulatory scrutiny, loss or suspension of licensure, and mandatory remedial actions.
Exemptions to BOIR
While FinCEN has strict reporting requirements, there are exemptions for certain types of companies. FinCEN has outlined 23 exemptions, covering a range of publicly traded entities, nonprofits, and some large operating companies.
Types of Exemptions
- Publicly Traded Entities: Many publicly traded companies are exempt from BOIR due to existing transparency requirements.
- Nonprofits: Certain nonprofit organizations are also exempt.
- Large Operating Companies: Some large companies that meet specific criteria are exempt from these reporting requirements.
Important Take Aways
Understanding whether an Anonymous LLC can be identified as a beneficial owner for BOIR reporting is essential for compliance. While Anonymous LLC’s cannot be beneficial owners themselves, knowing who the true Beneficial Owners are and reporting them is crucial for adhering to FinCEN’s regulations. The most important takeaway is to understand that reporting to FinCEN does not negate the purpose of an Anonymous LLC. The Anonymous LLC protections have always been to shield your private, personal information from the public. BOIR data is private data only available by law enforcement, the IRS and banks, and is not publicly disclosed.
Navigating these requirements can be challenging, but staying informed and compliant is vital for the sustainability and legality of your business. If you’re unsure about the reporting requirements for your company, consider consulting with an attorney to guide you through the process. Better yet, let Law 4 Small Business complete your Beneficial Ownership Information Report for you. Learn more: https://www.l4sb.com/services/beneficial-ownership-information-boi-report/.
If you’d like to explore more about beneficial ownership and reporting requirements, book a call with one of our attorneys to help refine your understanding and ensure your company stays compliant. Start here: https://www.l4sb.com/services/attorney-consultation/.
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