Beneficial Owner Exceptions under BOI Reporting

The FinCEN BOI Small Business Guide was originally released on 9/18/23 and subsequently updated on December 2023 as Version 1.1.  The purpose of the Guide is to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule that starts January 1, 2024.  The Guide provides an explanation regarding  who is a beneficial owner of a reporting company.  A beneficial owner is any individual who, directly or indirectly:  Exercises substantial control over a reporting company;  OR  Owns or controls at least 25 percent of the ownership interests of a reporting company. An individual might be a beneficial owner through substantial control, ownership interests, or both. However, there are five beneficial owner exceptions under the FinCEN definition that reporting companies need to understand because the reporting company does not have to report that individual as a beneficial owner in its BOI report to FinCEN.

Here are the five beneficial owner exceptions to the FinCEN definition as per the Guide:

1. A minor child. An individual qualifies for this exception if the following criterion applies: the individual is a minor child, as defined under the law of the State or Indian tribe in which the domestic reporting company is created or the foreign reporting company is first registered. If yes, the reporting company may instead report information about the parent or legal guardian of the minor child. This exception only applies if a parent or legal guardian’s information is reported in lieu of the minor child’s information. Also, when the minor child reaches the age of majority, as defined by the law of the State or Indian tribe in which the reporting company was created or first registered, the exception no longer applies.  At that time, if the individual is a beneficial owner, the reporting company must file an updated BOI report providing the individual’s own information
2. A nominee, intermediary, custodian, or agent. An individual qualifies for this exception if the following criterion applies: the individual merely acts on behalf of an actual beneficial owner as the beneficial owner’s nominee, intermediary, custodian, OR agent.  Individuals who perform ordinary advisory or other contractual services (such as tax professionals) are likely to qualify for this exception.  In scenarios where this exception applies, the actual beneficial owner must still be reported.
3. An employee. An individual qualifies for this exception if all three of the following criteria apply: 1) the individual is an employee of the reporting company, when applying the meaning of “employee”. The term employee means that an individual is subject to the will and control of the employer in what and how to do work, and that the employer may discharge the individual from work.  2) the individual’s substantial control over, or economic benefits from, the reporting company are derived solely from the employment status of the individual as an employee. 3) the individual is not a senior officer of the reporting company.  The term “senior officer” means any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, or chief operating officer, or any other officer, regardless of official title, who performs a similar function.
4. An inheritor. An individual qualifies for this exception if the following criteria apply: the individual’s only interest in the reporting company is a future interest through a right of inheritance, such as through a will providing a future interest in a company. Once the individual inherits the interest, this exception no longer applies, and the individual may qualify as a beneficial owner.

5. A creditor. An individual qualifies for this exception if the following criteria apply: the individual is a creditor of the reporting company.  The term “creditor” means an individual who would meet the definition of a beneficial owner of the reporting company solely through rights or interests for the payment of a predetermined sum of money, such as a debt incurred by the reporting company, or a loan covenant or other similar right associated with such right to receive payment that is intended to secure the right to receive payment or enhance the likelihood of repayment.  The Guide provides an example; an individual qualifies for the creditor exception if the individual is entitled to payment from the reporting company to satisfy a loan or debt, so long as this entitlement is the only ownership interest the individual has in the reporting company.

Extension for filing initial BOI reports – The Guide was updated in December 2023 to incorporate revised language such as the extension of reporting timeline for reporting companies created on or after January 1, 2024, and before January 1, 2025

On November 29, 2023, FinCEN extended the deadline for certain reporting companies to file their initial beneficial ownership information (BOI) reports with FinCEN. Reporting companies created or registered in 2024 will have 90 calendar days from the date of receiving actual or public notice of their creation or registration, becoming effective to file their initial reports. FinCEN will not accept BOI reports from reporting companies until January 1, 2024—no reports should be submitted to FinCEN before that date. Reporting companies created or registered before January 1, 2024, will continue to have until January 1, 2025, to file their initial BOI reports with FinCEN, and reporting companies created or registered on or after January 1, 2025, will continue to have 30 calendar days to file their initial BOI reports with FinCEN.

Reporting companies ought to understand the beneficial owner exceptions so that their reporting is accurate.

Do you have any beneficial owner exceptions as a reporting company?

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