US Beneficial Ownership Information Registry
On January 1, 2024, the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) launched the online BOI E-Filing System and began accepting Beneficial Owner Information Reports pursuant to a new compliance regime under the Corporate Transparency Act.
1. Who needs to file?
Starting January 1, 2024, all non-exempt entities formed or registered to do business in the United States are required report Beneficial Owner Information (“BOI”) to FinCEN by January 1, 2025. This includes all corporations, LLCs, limited partnerships or similar entities created by filing a document with any US state, territory or Indian tribe as well as foreign non-US entities that are registered to do business with any US state, territory or Indian tribe.
2. Who is a beneficial owner?
A beneficial owner is any individual who, directly or indirectly:
- exercises “substantial control” over a reporting entity; or
- owns or controls 25% or more of the ownership interests (equity, stock, voting rights, convertible instruments or any other instrument, contract or other mechanism used to establish ownership) of a reporting entity.
An individual exercises “substantial control” of a reporting entity if such individual:
- serves as a senior officer (for example, president, CEO, COO, CFO, general counsel and any other key officer position of a reporting entity);
- has authority over the appointment or removal of any senior officer or a majority of the board of directors; or
- directs, determines or has substantial influence over important decisions made by a reporting entity.
3. What information needs to be provided?
A reporting entity is required to provide the following information about Beneficial Owners:
- full legal name;
- date of birth;
- current address; and
- unique identifying number and an image of government-issued identification (US passport, state-issued driver’s license, or a foreign passport).
4. Who is exempt from the Beneficial Ownership Information filings?
There are 23 exemptions, which are listed in greater detail in the Small Entity Compliance Guide by FinCen.
One of the key exemptions is for “large operating companies” that: (1) employ 20 full time employees in the US; (2) has a physical presence in the US; and (3) filed federal income tax for the previous year demonstrating more than $5,000,000 in gross receipts or sales.
Other key exemptions are for inactive entities that are not engaged in active business and for subsidiaries of any other exempt entities.
5. What does this mean for you?
If you are a beneficial owner of a US entity and not exempt from the filing requirements, failure to maintain and file a BOI Report by January 1, 2025 may result in fines up to $500 per day per violation and potential imprisonment.
Please reach out to the Voyer Law team to discuss your Beneficial Ownership Information filing requirements and whether your entity qualifies as an exempt entity.
New Filing Requirements for Canadian Federal Corporations – Individuals with Significant Control (ISCs)
Starting January 22, 2024, all federal corporations created under the Canada Business Corporations Act (CBCA) are required to file information regarding individuals with significant control (ISCs) with Corporations Canada.
1. Who is an ISC?
According to the CBCA, an ISC is an individual (see: human person) that:
- owns, controls or directs 25% or more of the shares of a corporation individually, jointly or in convert with one or more individuals;
- has control over the corporation without owning any shares; or
- meets a combination of any of the above two factors.
If a corporation’s shareholder is an entity (for example, a corporation, partnership, or trust), the individual(s) in control of such entity must be identified as ISCs.
Additionally, if multiple family members jointly own more than 25% of the shares of a corporation and one family member has sufficient influence over the other family members, such influential individual may be considered an ISC.
2. What information will be filed?
The following information regarding ISCs must be filed with Corporations Canada:
Information that will be made public:
- full legal name;
- date on which the individual became an ISC;
- description of the ISC’s significant control; and
- mailing address.
Information that will not be made public:
- date of birth;
- country of citizenship;
- country of tax residency; and
- residential address.
If an ISC is less than 18 years of age, information will not be made publicly available until such individual turns 18 years old.
You may file an application to not make the information about an ISC public if:
- making the information publicly available presents or would present a serious threat to the safety of the individual;
- the ISC is declared incapable either by court or under provincial or territorial laws; or
- making the information publicly available would go against the Conflict of Interest Act or a similar legislation of a province or territory.
3. Who is excluded from the ISC filing requirements?
Most federal corporations are required to comply with the new filing requirements, however, the following corporations are excluded:
- non-federal corporations (for example, a corporation incorporated under a province’s corporations act);
- a reporting issuer under provincial securities legislation or a wholly-owned subsidiary of a reporting issuer;
- a public corporation that trades its securities on a stock exchange designated by the Income Tax Act or a wholly-owned subsidiary of such a corporation; or
- a crown corporation or a wholly-owned subsidiary of a crown corporation.
4. What does this mean for you?
If your corporation is federally incorporated and not exempt from the filing requirements, failure to maintain and file the ISC information may result in directors or officers facing penalties up to $1,000,000 or possible imprisonment, as well as potential fines to the corporation of up to $1,000,000 and involuntary dissolution.
Please reach out to the Voyer Law team to discuss your annual filing requirements and to maintain your corporation in good standing.
LLCs are Bad for Canadians (Mostly)
Problems with Stripe Atlas Incorporation for Canadians
We frequently work with Canadian startups operating a U.S. (usually Delaware) company incorporated on their behalf by Stripe Atlas. On the surface, Stripe’s assistance with incorporating this U.S. company seems convenient and an easy way to meet the U.S. entity requirements to use the Stripe payment processing platform. However, a number of material issues are generated by Stripe when it incorporates a U.S. company on behalf of a Canadian startup.
Problem #1
It’s critical to understand that a U.S. company cannot operate out of Canada without registering as doing business in Canada (thus exposing the company to unnecessarily complicated Canadian/US dual taxation), which Stripe does not address in its standard documentation.
The common solution to this is to treat the U.S. company as a parent to (or as a subsidiary of) a new Canadian company and isolate each company’s tax obligations in their respective countries.
Problem #2
Your U.S. company formed by Stripe needs to transact with your Canadian company on an arm’s length basis, taking into account tax transfer pricing rules. If you don’t engage in tax planning around the flow of cash and assets between the two companies, expect expensive tax problems in the future
These tax issues can typically be addressed through cross-border tax planning as documented in an Intercompany Agreement in which we address the flow of cash and assets between the two companies. For example, in the agreement we can address which company books sales in which countries and how the cash from these sales moves between the companies.
While Stripe Atlas touts the ease and speed with which a U.S. company can be incorporated, it neglects the massive cross-border legal and accounting issues that forming a U.S. company abroad generates. If these issues are understood before incorporating, Stripe Atlas can be a valuable tool but, if not understood and planned for, expect it to generate more problems than it solves for.