Can Anonymous LLCs Be the Beneficial Owners for BOIR Reporting?
Complying with the Beneficial Ownership Information Reporting (BOIR) requirements required by FinCen can be confusing and intimidating; especially if your business operates under 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 what FinCEN is. The Financial Crimes Enforcement Network (FinCEN) 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.
Why FinCEN Requires Beneficial Ownership Reporting
FinCEN mandates Beneficial Ownership Reporting (BOIR) to enhance transparency and accountability among business entities. This requirement helps prevent financial crimes like money laundering, terrorist financing, and fraud. By knowing who is behind corporate entities, FinCEN can promote greater due diligence and screening of individuals involved.
What is Anonymous LLC?
An anonymous LLC is a type of limited liability company where the ownership details are not publicly available. While not all states allow anonymous LLCs, states like New Mexico do. In states that don’t permit anonymous LLCs, you can still organize a parent company in a state that does and a child company in your state of operation—except in Maryland, which specifically prohibits anonymous LLCs.
Can Anonymous LLCs Be Beneficial Owners?
To cut to the chase, an anonymous LLC cannot be a beneficial owner in FinCEN’s eyes. FinCEN’s regulations specify that a beneficial owner must be an individual. Anonymous LLCs are corporations, not individuals, and thus do not meet the criteria for beneficial ownership.
The Importance of Individual vs. Corporate Ownership
Clarifies Rights and Legal Responsibilities
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.
Establishes Ownership and Control
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.
Regulatory Compliance and Enforcement
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.
FinCEN’s Definition of Substantial Control
FinCEN’s definition of substantial control includes anyone who makes significant decisions on behalf of the 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.
Navigating Compliance Changes
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 reports. Companies created or registered after January 1, 2024, have 30 days from receiving notice of their creation or registration to file their initial reports.
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 LLCs cannot be beneficial owners, 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. Anonymous LLC or any legitimate LLC for that measure cannot be anonymous to the government, the IRS or to banks.
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 Reporting for you.
If you’d like to explore more about beneficial ownership and reporting requirements, book a call with one of our expert attorneys to help refine your understanding and ensure your company stays compliant.
Law 4 Small Business (L4SB). A Slingshot company. A little law now can save a lot later.
