Understanding the NEW Beneficial Ownership Reporting Requirements - Transcript from Webinar

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Beneficial ownership pertains to the identification of individuals who have substantial influence or hold significant ownership stakes in a reporting company. Navigating the nuances of beneficial ownership reporting can be daunting without a clear understanding of its underlying principles and requirements. Read the transcript below to learn more about Beneficial Ownership Reporting (BOI).

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BOI Webinar Transcript- 2024

00:09:35 [SPEAKER_Mitesh Patel]

All right, well, I think we're about there where we have most of our participants. I'm sure we're going to have a few folks trickling in here over the next few minutes. We'll let them in, but just for the sake of everybody's time and schedule, let's go ahead and get started. So, my name is Mitesh Patel, and I'm the founder and principal of Blue Sky Law. I'm here with my two co-hosts today, Philip Stewart, who is my colleague here at Blue Sky Law, and also Bruce. Thank you. We're going to go around here in just a moment and introduce ourselves. I appreciate you all joining us today. If you have questions as we go, you're more than welcome to use the raise hand feature, or if you would like, put those questions in the chat. I'm going to be monitoring that. I'll be gathering the best ones out of those, and then we'll just start going through those. If the questions are limited, we should be able to get to all of them, but we'll just see how those shake out. So, again, Mitesh. Mitesh Patel with Blue Sky Law. Blue Sky Law, we're a boutique transactional mergers and acquisitions firm based in Atlanta. We do transactions all across the country and even internationally. We primarily do help individuals with purchases of businesses, sales of businesses, and the occasional merger as well. Most of the transactions that we handle will be up to $200 million. That's kind of where we tap out with our current. But I appreciate you all being here with us today. Philip, do you mind introducing yourself, please?

00:11:12 [SPEAKER_Philip Stewart]

Yeah, absolutely. So, yeah, as Mitesh said, I'm an associate here at Blue Sky Law. I've been practicing for about five years in mergers and acquisitions. Prior to coming over to Blue Sky, I've been an entrepreneur. I've owned my own company. So a lot of like most of your clients or some of our clients on here, I understand the ins and outs of running and operating my own business as well. Afterwards. Went to law school, been in a few different industries, including acquisition of boat marinas and home portfolios throughout the country before coming to Blue Sky. But here at Blue Sky, I focus on corporate law as well as mergers and acquisitions. And so when this new law was coming forward, knew it would affect a lot of the business owners that are clients of ours and clients of those around Atlanta. So looking forward to the opportunity to be able to share some exciting new stuff about this new law. Bruce, we'll give you a couple minutes. If you want. Introduce yourself and go from there.

00:12:07 [SPEAKER_Bruce Burkholder]

Sounds good. Yeah. Good afternoon, everybody. My name is Bruce Burkholder and I represent a firm called Robbins, Eskew, Smith & Jordan. We are a midsize firm here in the Atlanta area. We have about 40 folks on our team, three offices and kind of just a full service firm. Focus on a test engagement, reviews, audits as far as that side. And then also on the tax side, all the tax compliance, consulting, succession planning, things like that. And. Yeah, so just happy to be here if, you know, if you need any help with any of that kind of stuff, reviewed statements, audited statements, write up work, tax work. We would love to hear from you and see if we can help you out. But mostly just here to learn more from Philip and see how we can help his clients or how he can help us help our clients with this new law. So, yeah, happy to be here.

00:13:01 [SPEAKER_Mitesh Patel]

On mute. Sorry about that. So. All right. Well, let's let's. Let's get started. Philip, you should be able to pull up the PowerPoint, I think, on your side while Philip is working on getting that going. I'll give just a little bit of background on the on FinCEN. And you all might have heard that acronym. It stands for the Financial Crimes Enforcement Network. So it's a division of the U.S. Treasury. It came out of the U.S. Patriot Act in 2001. And since that time. As you all might have known and seen, you've seen, you know, different areas of our treasury and financial system, security system has changed primarily in line with FinCEN's mission, which is to safeguard the U.S. financial systems from illicit use, from money laundering. And the primary thing that they, you know, with this beneficial owner's owner information needs to be. It's really about anti-terrorism. At least that's what they say it is. It just it's going to be interesting. We're going to jump right into this and talk about it for I think this is just my opinion here before, you know, before Philip gets started. I do think there are going to be some things that are going to have to work out. And as Philip mentioned, updates even as recently as a couple of days ago. So this is a little bit of a little bit of a moving target. But with that, Philip, I'd like to pass it over to you.

00:14:34 [SPEAKER_Philip Stewart]

Perfect. Thank you, Mitesh. So, yeah, as Mitesh said, we kind of did our little introduction here of who we are, what lies ahead. We're going to be talking through basically the nuts and bolts of what's going on. Some of the updates that we've seen in this, the requirements that your clients are going to have, as well as penalties if they decide not to comply with these things. And we'll finish with some questions on the back end. So with this, FinCEN is establishing and maintaining a national registry and database of registrations. So we're going to talk about kind of an unpack what that is. We'll talk about who registered agents are on behalf of the company, those individuals who are filing these beneficial owner information reporting. We'll talk about, like I said, penalties with with both on the federal government side, those who decide to disclose information of our clients, as well as the penalties for our clients choosing either not to comply with the initial filing of the I'll call it the BOI or the beneficial owner information, those who decide not to to report this BOI or in addition, any of those who don't update their BOI information. We'll also talk at the end about some solutions that we're going to provide here at Blue Sky. Any individuals who are seeing this webinar, Blue Sky is willing to work with you and help you and those who are attending this, we will be giving a discounted rate for those who are attending this webinar with us. So with that, we'll jump in. So a reporting company, as I said at the beginning, FinCEN is establishing and maintaining a national registry of the beneficial owners of entities with their that are deemed to be reporting companies. OK, so let's talk about that. What is a reporting company? I will tell you all right now, I have a big pet peeve when people just sit and read PowerPoints. You will not see me do that. You can read the PowerPoints as we're going through. So a reporting company, though, is just. Like it sounds, it's going to be domestic and foreign companies. Mainly, we need to be thinking about entities that are filing with the secretary of state in their given state. Right. So any type of entity that's filing and registering with the secretary of state, those are going to be seen by the federal government as these reporting companies. So limited liability companies, limited partnerships, limited liability partnerships, corporations, all of those apply. There are some exceptions, however, as the government has put a few caveats in here for companies. So let's talk about the companies basically that they already know about. OK, here are the companies types that are exempt. You can see there there are 23 different kinds. I put a highlight over in the side in case you don't want to read through each of those. I'll just point out banks and credit unions, insurance companies. But the special one that I want to pay attention to for many of your clients where this may apply is number 21, which is the last bullet point that you see there. Large operating companies. So companies that have more than 20 full time employees with grants. Gross receipts or sales of over five million dollars. Now, you may be asking yourself, why are these companies that we see on this list exempt as opposed to the majority of our clients that we're going to see that might be complaining to us about this new requirement that we're going to have to fill out this new B.O.I. reporting? The answer to that is these companies are companies that are already known by the federal government. Right. These entities are already filing different reports with the federal government that they feel that they already have the information associated. For these companies. So where you have, you know, banks and credit unions, they're already in compliance with something very similar with individuals that are opening bank accounts. So many of you, as you're opening your bank accounts, you know, you'll have to go give them a copy of your driver's license and that kind of stuff. It's to be in compliant already with a different version of this law. This is really here to kind of capture the rest of those entities, those rest of those business owners who have these companies where, like Mithesh said, they're trying to. Limit illegal activity, shell companies from being able to operate within the United States. And we'll talk a little bit more about that as we go through this. OK, so what information does a reporting company have to to give? You'll see here it is the legal name of the company. So the name of the company as it is registered with the secretary of state, as well as any trade names. Now, that might be harder for some of our clients. Right. Because here in Georgia, under Georgia law, when filing a DBA. We're doing it with the superior court of whatever county where we want that that DBA to be. Right. So it might be something where our clients kind of have to track it back down. We see that a lot with our clients trying to track down where they've got their DBAs. And then the current street address of the principal place of business. Now, you saw on the slide a couple ago that we said it's both for both domestic and foreign entities. So let's talk a little bit about that for the domestic entity. It's going to be the headquarters. OK. So the headquarters within the United States where it is, that's also going to apply for foreign entities. So let's say, for example, I know here at Blue Sky, we have a very good client of ours that's in Singapore. That client as a foreign entity, the government will look to where they have their their headquarters here in the United States. So wherever they are headquartered here within the United States, that is the street address or the principal place of business that we'll be looking to. You'll also have to include the jurisdiction of the formation. So for us, it'll be Georgia within the United States and then their TIN number. So as you're talking to your clients, just make sure that you're gathering this information on the back end of this presentation. We'll be talking a little bit more about a disclosure statement that we here at Blue Sky have set up, which is going to pretty much pattern the information required in the BOI reporting. And in that, you'll see a lot of this information there. So after this, we'll make sure to get that out to everybody. So that way, as your clients have questions about, well, what exactly am I disclosing? You know, in addition to these PowerPoint bullet points that you see, we'll also provide that to everybody. So that way they can easily see the things that their clients are going to need. OK, so we talked a little bit about what the reporting company is. It's domestic or foreign companies that are not included in those 23 exceptions, which I can tell you by and large, that's going to be almost every company. Right. Most of our clients, most of the companies. Out there are going to fall under this this area. We've seen reports that it's going to be somewhere between 32 to 37 million companies in the United States. Right. So many, many companies are falling under this umbrella. And then here we have the information that that reporting company is going to be providing. So if you look at the reporting that has to be done, these are the items that are kind of in that top part of the report that we fill out. Most people don't get heartburn about this part, right? They figured that the government already knows. Most of this information that's found on the Secretary of State website or you can, through simple due diligence, find most of this stuff, maybe not the ten number, but most of the other stuff. Right. Where we do get a little bit of problems is this next area, right, which is the beneficial owners. So who are the beneficial owners of a company? This is kind of where we're going to have a rub, OK, because like we said, FinCEN is establishing and maintaining a national registry. So they're going to be holding the information of beneficial owners of those. Reporting companies we just looked at. Right. So beneficial owners, you can see there there are two types. We're going to break down both. This is where we've seen a little bit more definitional clarity over the last few days. And we'll make sure to go through this and I'll explain. So a beneficial owner of a company is any person who exercises substantial control, which has been defined or anybody who owns twenty five percent or more ownership interest in that entity. So. Any person who's exercising substantial control or has twenty five percent or more interest in it. Now, many of you might be asking, OK, well, what about my LLC that owns an interest in my in a given entity? Right. In that situation, they are going to continue to dig down until they find actual individuals. OK, so, for example, let's assume that you have ABC LLC and ABC LLC has to two owners. Essentially, it has Joe Smith. And then it has X, Y, Z LLC as 50 50 owners, both of those owning twenty five percent or more ownership in it. Both of them are deemed beneficial owners of this. So Mr. Smith is going to have to give all of his information. And then when they turn and look to the LLC now that holds the other interest, the government's basically going to ask two questions. One, is that a reporting company? And if so, it's going to have to give all of its information. But in addition to that, the fact that it is a beneficial. Owner of our ABC LLC, then it will now look to the owners of that LLC for the information to to to accept the the beneficial owner request that we've had before. OK, so as we go through this, think through that as you are dealing with your clients or looking at requests that your clients have, or if you are the client watching this, think about what is the ownership structure of your company? What does it look like? Who are the owners? Who are the decision makers? And I'll kind of go to that next. Looking at the substantial control part of this, we have examples from Finson, which is which is who's putting this out. We have examples from them about what they are saying are absolutely people who have substantial control. Those people include presidents and CEOs, CFO, COO. So think C-level employees, general counsel and then managers or directors that make substantial decisions at the company. So substantial control is in four different ways. A senior officer, which I just talked about, president, CEO, CFO of a company, those that have authority to appoint or remove officers or directors. So if you have the power within your company to remove directors in and out of the company or managers in and out of the company that checks the box. And then I love when the government gets a little bit more vague with it. Number three that they say is important decision makers. So. So important decision makers, they do drill down a little bit talking about does the individual have control over the finances of the company? Can they decide where the checkbook comes and goes? Also, the structure of the company, can they determine whether the company shifts and becomes a corporation or an LLC? Can they control kind of what the board looks like? Two caveats to this board of directors does not necessarily mean a beneficial owner. It's going to depend on the on the board of directors. What their actual day to day operations and power are within the company. If they actually exercise substantial control alone to be able to do things that also applies for tax matter partners. I know we have some CPAs on the call. Tax matter partners do not immediately are not immediately defined as beneficial owners. It will depend on the amount of say that they have in the company's work. The last carve out here for substantial control is. Is any other form of substantial control is what the government says, and it's really looking to if you have a flexible corporate structure where you kind of have people that are kind of moving and shifting throughout. OK, so those are the four kind of definitions of substantial control, along with any individual who has 25% or more of the company. OK. All right. I see a question from Rob with beneficial owners. If an entity is wholly owned by an FLP. Does the reporting requirement mean that both the LP and GP have to be disclosed? OK, so in that situation, looking at if you have limited partners versus general partners, if you have 25% or more of the company automatically, they're going to have to be considered a beneficial owner. If now we're looking at substantial control, we're going to look to each of those to determine if they fall within those four boxes, right? So as if you're looking, I'll take limited partner because that's probably. More more applicable here with the question, does the limited partner have some kind of power over the company where they're making decisions for the company in many situations they're not right? Are they important decision makers? Do they have the opportunity to change and shift what the company is doing? Those are the items that that we're looking at here to determine if they're beneficial owners. One caveat. I'll say to this if you're sitting and listening right now and saying, man, I don't know. It's kind of on the line. It's kind of gray. I will suggest to you that you include them as beneficial owners. The reasoning for that is we'll talk about some of the penalties that can come if you choose not to comply with this law. But in addition to that, the government is allowing us that once you fill out this beneficial owner information with them, if in the future it changes or you realize, wait a minute, this individual does not have the information or the opportunity to have. The substantial control. You can go back in and edit and alter that and pull those individuals out. So it's not a situation where as long as that individual gets put in, they're just there forever. You do have the opportunity to go back and edit and bring that person out. All right. I'll try to take these on the fly. Here's one from Lee. How would a trust owned reporting entity work? I'm assuming that a trust itself has no reporting requirements in general ordinarily. That's a great question. As a matter of fact, me and my face had lunch. With a trust in the state attorney this afternoon who asked us a very similar question. So the triggering issue here is, has the company registered with the Secretary of State? If they have registered with the Secretary of State, like I said at the beginning, those are the ones that are on the radar for the federal government. If they have not, then they are not considered a reporting company and do not have to have to help with the beneficial owners. Okay. So hopefully that helps. And I'm sorry. I was looking at those questions. I'll answer more on the back. And as we have questions, too. Okay. So what is the company, the reporting company, going to have to share about beneficial owners? And this is where there's going to be the rub for many people on this call. It's going to be the individual's legal name, birthday, residential address. It is not looking to your company address. PO boxes are not allowed. So actual residential address. If you don't want to have heartburn, just consider that you're going to have to share the residential address that matches your driver's license. And you'll see why in a second here. A unique identifying number from an acceptable identification document, which we will talk about. What are these identification documents that are needed? The name of the jurisdiction of where that is. So Georgia, United States. And then here's the kicker, an image of that identification document. On the next slide, I'm going to talk about that. But you can see here, they're looking, drilling down to the actual person. So we can't look to the LLC if an LLC is owned by another one. We're not going to look to trust. If you do have a trust that is registered with the Secretary of State, they're going to be looking to the trustee of that. So, for example, if a trust owns more than 25% of an entity, they're going to be looking to that trustee. But really where we're going to see most pushback for most people, I would imagine, is having to upload an image of your identification document. So let's talk about what that is. This is the list of the appropriate or acceptable identification documents. It's basically going to be driver's license for 99% of us, right? So it'll be, you'll be putting the driver's license number, jurisdiction, so for most of us, state of Georgia, United States, right? And then you'll be uploading a copy of your driver's license. They'll be holding onto a copy of it. If you don't have a driver's license, it can also be a passport, U.S. passport preferred, obviously. Any of those. If they do not have a U.S. passport, then it can be a non-expired passport from a foreign company. But they're going to be looking for anything that's registered here in the U.S. if they can. I want to note here, if any individual does not have any of these three forms like you see there, you can, the reporting company may provide the identifying number from a non-expired passport issued by a foreign government, right? So just like I said, like, that's where they're going to be looking. So. You got your personal name, address of your residential address. You can see here the fact that you're uploading a copy of your driver's license. They're going to want that residential address to be matching that driver's license, right? So we got to update your driver's license. You might want to do that. But these are the items that they're going to be asking us for, okay? So you may be asking yourself, okay, I've provided all of this information. Now the federal government is holding it. What happens to the safety of that? How do we safeguard against that? How do we protect against that stuff being used? So here are the entities that will have the ability to access your information. You'll see from the list it's federal government entities, right? We have federal government entities that will be allowed to have this information and use it for purposes of, well, what they say is purposes of combating shell corporations or other illegal activity. You can see there at number 6-2. Foreign law enforcement agencies will be, with certain subpoenas, be able to come in and request certain information. But I really want to stress what you see on the right there, the penalties for anybody within the government that shares your information. You can see the penalties are pretty steep, $500 a day, penalty up to a quarter of a million, as well as up to five years in prison. So they are, if you go through FinCEN's website, they do have many different things saying that they're trying to be extremely careful. What FinCEN has said is that inside this database, it is taking the government's top security clearance level without going into top secret. So without it going into top secret government stuff, but what they consider to be very sensitive information, that is how the government is kind of defining it inside their programs as to how important your information is and to keep it safeguarded. So as long as your information stays here, we should be careful. It should be okay, right? If it gets out, we might have some problems. Okay? All right. Okay, so here are the penalties for us if we do not comply. And I'm going to read this as this is the law within the regulations. I don't want to mess it up. It shall be unlawful for any person to willfully provide or attempt to provide false or fraudulent beneficial ownership information. So you can't kind of skirt your way around this. It is illegal. You need to provide the correct information. We obviously don't have examples of this yet, but the government has said in some training that they're going to assume that you're operating in good faith, right? And so if you do have a mistake or something wrong, I don't think it's something that you need to lose sleep over because you do have the opportunity to amend and change it, and we'll talk about that in a second. But fraudulent beneficial ownership information, including a false or fraudulent information. A, identifying photograph or document. So you can't fake your passport or your driver's license. And then B, willfully failing to report complete or updated beneficial ownership information to FinCEN in accordance with subsection B. Let's talk about that. Let's break that down for a second. So if let's say you decide to move, which most people decide at some point to move, what does that mean? Because they have your driver's license. They have your residential address. FinCEN is allowing everybody 30 days to update that. So if you have a situation where you're moving or one of your beneficial owners is moving or you need to update some information, you've got an expiring driver's license or expiring passport, the government will allow 30 days to go in and amend and alter that report. So at the beginning, you'll put in your report, and it'll be there. And then any changes you need to do. They will consider your kind of deadline for that is 30 days from the time that you knew that you needed to make the change. Right? So if an employee or a beneficial owner in your company moves but doesn't tell you, you don't need to, you know, have heartburn about that. They have a responsibility to update that stuff. But as far as you, if you're also in that company with them, you can rest assured the time clock starts once you're made aware of. Okay? You can see on the right. Those are the penalties. For individuals that choose not to comply with this law. So $500 a day up to 10,000 for people with up to 2 years in prison. This goes back to my comments earlier about if you're in the gray area and you're wondering, well, do I need to report that? Should I disclose that person? It's kind of a messy situation with different companies that I have. You should do the best you can to try to disclose that. If you also have questions about how the structure of your company looks. Please call your attorney. Or call an attorney. Or call us. Work through it. Because the last thing you want to do is be trying to undo any fines or penalties that are coming to you. Okay? So these are the criminal and civil penalties. It's not or. It's and. Right? You could be on the hook both for $10,000 and imprisonment for up to 2 years. So the government is pretty serious about it. And so it's something that we need to comply with. Okay? All right. So deadlines for reporting. These are the deadlines for your entities. So any company that was created prior to January 1, 2024, you luckily have an entire calendar year before you have to complete this report. Okay? Some people are turning me off and not listening to me already, I'm sure. But any company that was created prior to January 1, 2024, you will have until January 1, 2025 to register your company with FinCEN. Any entity that was created on January 1 of this year, moving forward for the next calendar year, and here's an update. I apologize it's not on here. This is an update over the last couple days, too. Any entity that was created at the start of this year will have 90 days from the time that they are registered with the Secretary of State. So let me unpack that a little bit. I'm starting a new company and I go to the Secretary of State and I file with the Secretary of State my new company. Okay? The clock does not start when I send it in. The clock starts when the Secretary of State stamps it and approves the entity. Okay? So if there's any question about where does that actually start, it's once the entity is officially formed by the Secretary of State. And you get that lovely email from the Secretary of State's office that says, I, Brad Roethlisberger, now say that this entity is approved and it's functioning within the United States. Right? So that applies for any companies that are formed during this calendar year. They have 90 days from the time that the entity is approved by the Secretary of State to file this report. Now, here's one little change. Any entities formed next year on January 1, 2025, at that point will only have 30 days to file this report. Okay? So any entities prior to this year, full calendar year. Any entities formed this year, you have 90 days from the time the entity is formed. And any entities in 2024. Those entities will have 30 days from which to do it. What that means is what they're essentially hoping is that as we start to form entities and we get used to this this year, next year we'll be pretty much filing that BOI at the time of forming the entity. Right? Okay.

00:38:59 [SPEAKER_Mitesh Patel]

So, Philip, if you don't mind, a quick question that's come in as it relates to this is that what if there was an entity that was formed prior to January 1 of this year? Right? So this is a company that has all year to report, but the owners are thinking that, hey, it might not be around for all of 2024. But what do you think in that case?

00:39:32 [SPEAKER_Philip Stewart]

Great question. Great question. So in that situation, because you do have a full calendar year with that deadline, if you were to close the company, you should not have to do that. You have to fill out this report. So if I've got the company that was formed and I get that full calendar year this year, but you say, hey, I'm winding that company down or I'm going to suck everything I can out of it and then close it before this requirement happens, you should not see any problem from FinCEN for that. Okay? Thank you, Mathesh. I'm sorry. I was getting going there and I stopped looking at the question. So I appreciate it. Okay.

00:40:06 [SPEAKER_4]

Okay.

00:40:07 [SPEAKER_Philip Stewart]

So those are the deadlines. That kind of tells you where we're at. This next slide, let's assume you say, okay, I've realized I'm a reporting company. I realize that I do have beneficial owners. Kind of what's the next step? As I said at the beginning of the call, because you guys are on this webinar, here at Blue Sky Law, if you want us to help you with this, we're offering a discounted rate for the services that we're going to provide. So after this call, like we said, we're going to be providing that disclosure statement you see under the basic package. Under the basic package, it's basically if you have your financial statements. You've got your ducks all in a row. You know your company's reporting. You know who the beneficial owners are. Maybe it's a disregarded or a single member LLC and you're like, yeah, I know who it is. It's me, 100%. Right? Then if you would like us to handle that filing for you, we will offer that for $100 per entity filing. But let's assume that you say, well, I know I'm a reporting company and I do have beneficial owners, but I've given my cousin a little bit of this percentage. I've got amended and restated operating agreements. It's shifted hands a few times. Or I'm not really sure what is official right now because I haven't updated an operating agreement, things like that. If you'd like us to look at your kind of your governance package, you can see there in the middle aisle, we at Blue Sky are willing to look at that for you. So what we'll ask for is your governance documents. And we will have an attorney here at Blue Sky look through those, determine who are those beneficial owners for you. Who has that substantial control? And give you a report back, basically showing you the entity formation, the entity's information that it's going to need for that report, the beneficial owners, and those people that would be required to be disclosing this information. So you can see there, we're offering that as a part of this. But let's assume that it's even a little bit more hairy where you say, you know, I really don't know where my company is right now. It's kind of there. It's kind of all over the place. Like I said, I've got operating agreements that are verbal with other people or situations like that, which we see fairly often here at Blue Sky. In those situations, if you want to talk to us for us to help you with that, you can see there, we'll offer a discounted hourly rate to work through that with you. Where the benefit of that is, is we want to sit down with you. We'll discuss it with you. Answer questions that you may have about your current company. Its formation. The way that it's formed. And help you work through and resolve some of the issues that you may have had for many years. And you say, man, I've just kind of been operating and going, but I want to get it right. That can be helpful in multiple ways, right? We know that companies either close or get sold. Those are kind of the only two options. Either we close the companies down or we sell them either to family or to other individuals. It's really important that we make sure that we have our entities organized and in the situation that they need to be. So, off of those three options, you can kind of see, we're here to help. Obviously, you know, at Blue Sky, we're not, you know, becoming rich with any of these packages. But it's really here to help you guys. We want to help our business owners. We want to help them answer questions that they have. As they are moving towards exiting, that will only make it easier, right? We deal with mergers and acquisitions every single day and have wonderful clients. And there are situations where clients come to us and say, I haven't really kept up on the governance documents like I was supposed to. And then we have to kind of scramble and create documents and help kind of catch them up. This is something that while many of us may go, oh, man, I really don't want to do this. It is something that will actually help get everything where it's supposed to be. So, when you are ready to sell that company and go live on a beach somewhere for the rest of your life, your entity will already be ready to go. Okay? I see that question. Let's see. If a company engages a fractional CFO as an IC, would they be considered a beneficial owner? Great question. Okay. So, fractional CFOs. So, like we said, transient people that are coming in and out. In that situation, do they have substantial control over the company? In most situations, yes, those people do. So, those people are probably going to be considered beneficial owners of the company. As they are coming in and out, if you have, for example, a CFO come in, like Mr. Levitt, like we had on the call earlier. If you have a person coming in and out, they are a beneficial owner as they are exercising substantial control over the company. The government is going to want to know about them. Think about it from this way. Let's assume that something illegal does get done with that company. Right? And the government comes to you and they say, hey, we see that this money laundering occurred while you had this CFO in place. Well, what are you naturally going to do? You're going to say, well, it wasn't me. Right? It was that CFO. And rather than them saying to you then, well, we demand that you give us all of their information, his or her driver's license, so we can go track them down. From their perspective, they're going to say, well, we already have their information. Thank you for the time. We'll come back if we have questions. And then they'll go try to find that person. Right? So, in that situation where you have these C-level employees that are kind of coming in and out of the company, those people will be considered beneficial owners. Okay? That's a great question.

00:45:31 [SPEAKER_Mitesh Patel]

That is a great question. You know what? I'd like to add along that same lines because looking at the roster of folks that we have on the call today, we do have a number of people that I know act in fractional positions, fractional CFOs. I see some people that act as fractional general counsels to their clients. I think the interesting thing is going to be is, you know, when we get those clients that are a little questionable, but maybe we would have taken them as clients previously, now knowing that name, they're going to have names of fractional professionals who might even be trying to help get these folks out of sticky situations. They're going to have to have their names associated with these companies. So, I think that's something we're going to have to wait and see how that plays out. But I'm expecting that to be one of the issues, you know, so to speak, that's going to be revisited with all of this.

00:46:24 [SPEAKER_Philip Stewart]

That's a great point, Mitesh. That's a great point.

00:46:26 [SPEAKER_Mitesh Patel]

Yeah.

00:46:27 [SPEAKER_Philip Stewart]

I see the question. One other thing.

00:46:28 [SPEAKER_Mitesh Patel]

One other question that came along. It's similar in nature, which is about registration. Right? Are registered agents going to have to report their information? One, I certainly hope not because I own a registered agent company. But no, they should not have to report, again, unless that registered agent has 25% or more ownership in that company or if they're exerting significant control.

00:46:54 [SPEAKER_Philip Stewart]

That's right. That's right. With Chuck's question there, is there a lower gross net income limit between which one does not have to report? No, unfortunately. If you have a company that is registered with the Georgia secretary, well, with any secretary of state in this country, and that company, so that company will be considered a reporting company and the beneficial owners will have to be there. The only situation where the income of the company does play an event is when they're making a pretty successful company, right, with the $5 million in gross with 20 full-time employees. In that situation, then they're considered exempt and they don't have to be registered. They're considered a reporting company and therefore the beneficial owners do not have to disclose their information, right? But yeah, if you've got, I'll tell you a personal example. My wife loves Stanley Cups and she would barter and trade those things. I'm sure many of you know of these and are smiling because significant others or you have Stanley Cups. But she turned it into quite a business to the point that it was making enough money that I formed an LLC for it. I'm a lawyer. I can do that, right? Formed the LLC for it. It does not generate a lot of money, right? But I had to fill out the BOI report for that entity, put her driver's license on it and comply with that. Again, if you're ever in the gray area, reporting companies or any companies that are formed with the Secretary of State, unless they're one of those 23 exceptions, which by and large are not going to be most of us, right? And then looking to the beneficial owners, 25% ownership in the company or exercising substantial control, you're going to apply here. So I would take the position. That you're going to have to comply with it and complete it. And then if you really are the exception of the rule, then you won't. But almost everybody is going to have to do this. Okay. All right. Here is my information. I know talking with Bruce, we said we didn't want to take everybody's day. I promised him I wouldn't try to take an hour. Again, I'm a senior associate here at Blue Sky Laws, a transactional corporate group. That is my email address. Personal email address. If you want to reach out to me with an additional question after this or my phone number. Please feel free. Reach out. Happy to answer questions. Also, at Blue Sky Law on our website, we currently have an article section that has updated information on this new law as it's coming out. So if you want updates as they're coming along, please feel free. Check our website. We're going to be including updates that come along. Additionally, I'll come back to this. You can see here on this one that a copy of the presentation will be sent to everybody in attendance today. So feel free to pass that along. To other people. We also have our email address there. BOI at Blue Sky Law dot com. So there you can request a fillable copy of this disclosure statement I've talked about that is going to have all the questions that are going to be need to be filled out. Feel free. Shoot us an email there. We're happy to answer any questions that you've got. And now I'll come back. So I went a little bit out of order.

00:49:54 [SPEAKER_Mitesh Patel]

So, Philip, I'll read these out to you. So one question is, what about nonprofit corporations? Domestic nonprofits? Do they need to report?

00:50:04 [SPEAKER_Philip Stewart]

That's a great question. So 501 C's 503 C's where certain ones will and certain ones won't entities that it's not really looking at to see if the company is for profit or not. There's been some there's actually that's actually a point of emphasis right now. That's kind of one of the fights right now is with nonprofits. Right now. FinCEN is saying they still count. They have to. They have to disclose. But there are groups right now trying to make them not have to do that. But right now they are included. Yep.

00:50:40 [SPEAKER_Mitesh Patel]

Philip, another question that's come through is, has any guidance been provided on the legal standard with respect to the willful failure to report?

00:50:53 [SPEAKER_Philip Stewart]

Not yet. So right now they're putting the affirmative duty that everybody needs to do it. That everybody needs to fill it out. But they're they're not talking about the willful failure. Part of that, though, if you'll see, is originally when this law came out, they said that this calendar year, everybody was only going to have 30 days to report. Then they got some pushback from that, and they've now pushed this year just this year to 90 days. And on FinCEN's website, what they've said is they are continuing to push out to Secretary of State to push this messaging out to people. So outside of this webinar, you're going to start seeing it. Most likely from the Secretary of State's office, from email blasts from the federal government, different ways that you're going to start seeing this. So more and more they're going to say, you know, you were willfully ignoring this law. So, again, I'm not a gambling man with that kind of stuff. I'm more of a belt and suspenders kind of guy with stuff. If you've got the entity, you should try to disclose as early as you can to not have to deal with the repercussions of it. But as of right now, we don't. We don't have any standards as far as them defining what is, you know, a willful failure to report. Not yet.

00:52:06 [SPEAKER_Mitesh Patel]

And, you know, I'm curious, you know, if anyone in the group, any participants today have any thoughts on this, I'd love for you all to chime in. This is one of those things where, you know, how does the government know that what you're reporting is accurate, right? I mean, unlike our taxes where there's kind of reporting. From both sides, right? So that they can confirm what was what was paid, what was received, et cetera, to a certain extent. I am very curious about how they're going to go about verifying the information. But if there's anybody that's on, you know, on this webinar today that knows anything about that, you know, please, please chime in.

00:52:49 [SPEAKER_5]

Well, that's a good question. I'm scratching my head saying it. Aren't all the owners generally reported on 1040? 1060? 1075? 990? Depending on the entity. And how does this differ other than being DOJ versus IRS?

00:53:07 [SPEAKER_Philip Stewart]

That is pretty much the difference, right? The position that they're taking is that the Department of Treasury has tasked FinCEN with setting up and maintaining this database. And it's independent from the IRS. So it's independent from any filings that you're doing there. I agree with you completely. They should have all this stuff on a K-1, right? But that's not how they're looking at it. They're saying, nope, we want this report that's being filled out as kind of a fast place to go. I assume they don't want federal employees having to go back through your tax returns or go, you know, access it from the IRS through whatever jargon they have to do to go cross department, right? They're saying that as a part of FinCEN, the Department of Treasury is going to be holding this report.

00:53:52 [SPEAKER_5]

So then is that maybe your cross check once they have the statement? If they have a database bill, they can cross check it against tax records to see if there's mismatches.

00:54:02 [SPEAKER_Philip Stewart]

Maybe they, yeah, I mean, they haven't said that they're going to do that, right? But I mean, obviously, when we start giving this information out, that could be something. If we go back, though, to the list of people that can see this, you can see there federal agencies engaged in national security, intelligence and law enforcement. So at least for now, they're trying to kind of limit it a little bit. But yeah, it's definitely something in the future. We're going to have to be mindful.

00:54:31 [SPEAKER_5]

Item three says Department of Treasury. That's who I write my tax payment check to. Yeah.

00:54:36 [SPEAKER_3]

So I think the I mean, like a lot of the people that this is targeting wouldn't file tax returns like they're foreign. So they don't have a, you know, a reporting requirement. But have they said who's actually going to enforce this thing? I don't know. But FinCEN handles foreign bank account reports for the IRS. But the IRS and DOJ tax handle enforcement.

00:55:02 [SPEAKER_Philip Stewart]

Yeah. Yeah. Not yet. We haven't seen the enforcement piece of this yet. Just the requirements. Yeah. And that's something we'll be updating as well, right? Like we said, as new information comes out, we'll be providing that. Thank you, Jason, for that jump in, too. You know, as new information comes out, we'll absolutely be making that available to everybody as well.

00:55:21 [SPEAKER_Mitesh Patel]

Yeah. Jason, who knows? You might be hearing about it first. Yeah.

00:55:26 [SPEAKER_4]

You let us know. Yeah. For those of you all who don't know.

00:55:29 [SPEAKER_3]

But after this presentation, I'm like, it needs to be. So.

00:55:32 [SPEAKER_Mitesh Patel]

For those of you all who don't know Jason Wiggum, he's the founder of Wiggum Law. They do tax controversy work. So if you get one of those scary letters from the IRS, you call Jason.

00:55:44 [SPEAKER_3]

I will say, if you Google, like, they have an FAQ about enforcement. And thank you. Thank you for saying that. But it does say that because it's a new requirement, it looks like if they contact you, they'll give you 90 days to file it and fix it. So I think they're going to be pretty friendly. I think this might be a it might not come to my world for a little while, you know.

00:56:04 [SPEAKER_Philip Stewart]

And I mean, obviously, we're not profits here. We can't see the future. But, you know, as we said, you're going to have 90 days to file the initial filing here and then do amendments. But then next year, it's going to drop to 30 days. So it is going to start tightening up, you know, as everybody gets a little bit more familiar with this. Okay.

00:56:22 [SPEAKER_Mitesh Patel]

All right. Any other questions? Okay. We don't have any other questions. There are a few other. And we welcome any questions. Feel free to drop them into the chat. If folks need to jump, you know, please feel free to jump. I think we're done with most of the substance. There are some things that we've talked about here at the firm. I did want to clarify. I think it was Mr. Henry, if he's still on, Lee Henry. He was asking about the trust-owned reporting entities. Just for clarification, Philip didn't say this, but that's going to be the trustee that is going to have to report. They're going to have to report their information. We were talking about this earlier today. I expect we're going to see some direct guidance about trusts, the varying types of trusts. But we have not seen that yet. We also talked about a similar topic when it comes to personal planning, which is, you know, we have some clients that have engaged in very specific asset protection planning. And a big part of that asset protection planning is kind of don't ask, don't tell, right, as we call it. Which is that the secret is keeping it a secret, right? That's a big part of the asset protection. And I hate to be such a cynic, but that's what I get paid to do. So I'm skeptical about the government keeping this information under wraps. I know they say they are, but once they have it, I mean, the hard part is done. And it's gathering that info. So I think we're going to see a number of things change. We're probably going to see some challenges. And we have some clients that are, you know, billionaires. They've got family offices. And they have spent significant money trying to squirrel things away. I cannot see those folks laying down very easily and just disclosing what's taken them, you know, months or years to, you know, to officially try to hide. So I think that's going to be an interesting thing, too. For those other advisors that are on this call, one of the things we've talked about, and again, being the cynical, maybe paranoid attorneys, is the high level of penalties also rolls back on the people that are actually filling out and reporting this information, even if it's not your own company. And so we have debated, should we or should we not do this on behalf of our clients? Bruce, not to necessarily put you on the spot, right? But I think I heard that maybe the answer is yes. I think AICPA was saying that accountants should not get involved in doing this sort of reporting. Do you know anything about that either way? Are you hearing anything with the accounting industry?

00:59:06 [SPEAKER_2]

Yeah, we get our insurance through Cameco. And they've been around a long time. And they only work with CPA firms. So we've had some initial consultation with them. And they have cautioned us, yeah, to be careful. You know, we don't want to play lawyer on TV. So, right. If it's a straightforward filing and, you know, we can do it, fine. But even those, we're kind of, I think, going to be taking more of an approach to just, you know, point them to you guys. Or if they think they can figure it out on their own, that's great. We'll provide general information. But, yeah, we don't want to get involved in it. Yeah, if we can help it. Yeah. So.

00:59:48 [SPEAKER_Mitesh Patel]

Let's see. So another question that just came in says there appears to be an exemption to the beneficial owner's substantial control requirements for employees. Phillip, do you know how that exception works?

01:00:02 [SPEAKER_Philip Stewart]

So for employees, they're going to be looking, I mean, for employees, they're still looking at what actions that employee is taking. So go back to the four things that they just said. Are they a senior officer? Probably not. Do they have the authority to appoint or remove officers or directors? Probably not. Are they important decision makers? Do they have the option to affect or change the finances or structure of it? Possibly, right? They possibly do have that power. So if they do take the cautionary side, that person probably could be someone that is considered substantial control over the company. And would. They could have to disclose their information. As far as an exception, I don't know about the exception to that employee. There is no, you know, protection that comes from you just because you're an employee of the company. Happy to circle up, Erica, afterwards on that one as well. Okay. With that, I know we said we were going to try to keep this slower. That's just going through talking about, you know, kind of a recap of what we just talked about. But again, a copy of this is going to be going out to everybody. If anybody has any questions, please feel free to reach out to us. We appreciate everybody.

01:01:19 [SPEAKER_Mitesh Patel]

Appreciate it. Thanks, everybody. Thanks, guys. Thank you. Have a great day. Thank you so much for putting this together. You're welcome. Thank you.