Beneficial ownership reporting requirements: A how-to guide
Is your small business ready to prove that it and you are who they say they are? Beginning January 1, 2024, entities must comply with the Corporate Transparency Act’s beneficial ownership reporting requirements. You will need to file a Beneficial Ownership Information (BOI) report with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Exactly how to file and what to include in the report can be tricky to pin down. That’s why we’ve created the following guide to help you understand the new requirements as a small business owner.
BOI reporting requirements: Key takeaways
- Starting January 1, 2024, entities must comply with beneficial ownership reporting requirements or face penalties, including fines of up to $10,000 and potential prison time.
- Beneficial owners’ information encompasses names, addresses, birth dates, and identification documents.
- Businesses existing before 2024 have until January 1, 2025, to file their initial reports. However, new entities formed on or after January 1, 2024, and before January 1, 2025, have 90 days from the completion of their state registration.
Are you compliant with the CTA?
Does my small business need to file a BOI report?
Before you start worrying about the Corporate Transparency Act and this new reporting rule, you should first take the time to understand the report and whether your small business needs to file with FinCEN.
The Beneficial Ownership Information (BOI) report is part of the Corporate Transparency Act (CTA) passed by Congress in 2021. The CTA established uniform reporting requirements for entities, from small businesses to large LLCs and beyond. The BOI report details personal information about the beneficial owners of a business.
The CTA and BOI report are part of the U.S. government’s attempts to crack down on financial crimes such as money laundering, tax fraud, financing of terrorism, and more. The CTA itself is part of the Anti-Money Laundering Act of 2020.
Qualifying business owners must file the BOI report with FinCEN – the U.S. Department of the Treasury’s Financial Crimes Enforcement Network. FinCEN issues instructions on who must file a report, when to file, and what information to include in the report.
The reporting requirements are far-reaching. It’s not always clear what types of entities must file the BOI report. Based on current reporting rules, two types of entities are considered “reporting companies:” a domestic reporting company and a foreign reporting company.
In this instance, “reporting company” refers to any domestic or foreign corporation, limited liability company, or similar entity formed in a state by filing with a secretary of state or similar office. The reporting requirements are far-reaching, but there are some exemptions.
To start, sole proprietorships and general partnerships are generally exempt from this requirement because they are not created by filing with a state office. Additionally, there are 23 types of exempt entities. Most exemptions are given to entities already operating under heavy federal reporting requirements. These include public companies, banks and other financial institutions, securities brokers and dealers, insurance companies, registered investment companies and advisors, pooled investment companies, and more.
“Large operating companies” are also exempt. A “large operating company” is a company with more than 20 full-time employees, a presence in a physical office within the U.S., and filed federal income tax or information returns in the United States for the previous year showing more than $5 million in gross sales or receipts from U.S. sources.
Penalties for failure to comply
Seeing as the BOI report is part of the government’s efforts to shore up anti-money laundering laws and rein in financial crime more broadly, the last thing you want to do is be on the business end of the law enforcement agencies responsible for doling out penalties.
If you fail to meet the reporting requirements or disclose beneficial ownership information without proper authorization, you could be on the receiving end of civil or criminal actions. Failure to file a complete and accurate initial or updated BOI report with FinCEN can result in a $500-per-day fine, up to $10,000 in total, and up to two years in prison.
Disclosing BOI without authorization carries a $500-per-day penalty, up to a maximum of $250,000, and up to five years’ imprisonment.
Beneficial ownership reporting requirements
Understanding what goes into BOI reporting requirements is vital for business owners, whether you’re the owner of a small entity or a large corporation. Below, we summarize the most crucial information you need to know, including specific reporting requirements, definitions for “beneficial owners,” deadlines, and more.
What information to include in your report
BOI reporting requirements fall into two categories: reporting company information and beneficial ownership information.
Reporting company information
Whether you’re creating an initial BOI report for FinCEN or filing an updated report with amendments, you must include the following reporting company information:
- Full legal name
- Any and all trade names or “doing business as” (DBA) names
- A complete current U.S. street address
- The state where the company was formed
- An Internal Revenue Service (IRS) Taxpayer Identification Number (TIN), including an Employer Identification Number (EIN)
- The state or tribal jurisdiction of initial registration, in the case of a foreign reporting company
Beneficial ownership information
All beneficial owners of a reporting company must include the following to comply with beneficial ownership reporting requirements:
- Full legal name
- Date of birth
- Current street address
- ID number, jurisdiction, and an image of one of the following non-expired documents:
- U.S. passport
- State driver’s license
- Identification document issued by a state, local government, or tribe
- Foreign passport, if none of the above are available or applicable
We’ve discussed what a “reporting company” means, but what is a beneficial owner?
Simply put, a beneficial owner is someone who directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25 percent of the company’s ownership interest. There’s no limit to the number of individuals who can be reported for having substantial control of a company.
You’re considered to exercise substantial control if you meet any of the following general criteria:
- You’re a senior officer in the company, i.e. President, Chief Financial Officer, General Counsel
- You have the authority to appoint or remove certain officers or directors
- You’re an important decision-maker
- You have any other form of substantial control over the reporting company
Ownership interest, meanwhile, can be any of the following:
- Voting rights
- Capital or profit interest
- Convertible instruments
- Options or other non-binding privileges to buy or sell any of the aforementioned
- Any other instrument, contract, or mechanism used to establish ownership
Note that a reporting company might have multiple types of ownership interests.
For businesses created on or after January 1, 2024, there is an additional reporting requirement. These businesses must include company applicant information in their BOI report. A company applicant is the individual who directly filed the document that created the reporting company. This may include the person primarily responsible for directing or controlling the filing process. For example, if your business hired an attorney to create your business and the lawyer’s secretary filed the creation documents, both the lawyer and their secretary are company applicants. The information you must include about your company applicant is the same as the information about your beneficial owners.
When and how to file
Remember that the requirement to file a BOI report didn’t go into effect until January 1, 2024. The good news is, if you must report, FinCEN started accepting beneficial ownership information reports on that date.
If your company existed before January 1, 2024, you have until January 1, 2025, to file your report. LLCs or other entities created on or after January 1, 2024, and before January 1, 2025, have 90 days to file their initial report. The countdown starts when you receive actual or public notice from the secretary of state or a similar office that your registration is complete.
Starting in 2025, new companies will have 30 days from the date they receive their actual or public notice to file their initial report.
Companies that must file a BOI report can do so electronically through FinCEN’s secure filing system. The catch is that FinCEN acknowledges that certain reporting companies may not be able to do so and will need to contact FinCEN.
FinCEN identifiers are unique identifying numbers that FinCEN gives to individuals or reporting companies upon request after providing specific information. It’s not a requirement, and an individual or reporting company may only request and receive one FinCEN identifier.
Why apply for a FinCEN identifier? The main reason is to make the overall process smoother. As an individual, you must provide FinCEN with the same four pieces of personal information required in the BOI report. Once you do so, you’ll receive a FinCEN identifier.
Reporting companies can then use the FinCEN identifier in place of that personal information when filing the BOI report. This makes it easier to comply with beneficial ownership reporting requirements and provides an extra layer of security for your personal information.
Requesting a FinCEN identifier as a reporting company is a simple matter of checking a box when submitting a BOI report.
Keep your business compliant and avoid penalties
Ready to comply with beneficial ownership reporting requirements?
Fulfilling your BOI reporting requirements is critical to running a compliant small business. You could be looking at thousands of dollars in fines and even potential jail time if you avoid your reporting obligations.
However, we know that you already have a lot on your plate as a small business owner, and the last thing you need is another report keeping you away from your passion. Luckily, Block Advisors can help you through every step of the process and ensure your report is filed correctly.
All reporting companies, including LLCs and corporations, must file a BOI report unless exempt.
If a person qualifies as a company’s beneficial owner, you must share specific personal information about them in the beneficial ownership information report.
Corporate entities created or registered to do business in the U.S. in 2024 must report beneficial ownership information to FinCEN within 90 days of their creation or registration to do business. Corporations that existed before 2024 have until January 1, 2025, to report beneficial ownership.
Is the beneficial ownership information reporting deadline extended for reporting companies created or registered in 2024?
The deadline for filing a BOI report for companies created or registered in 2024 was recently extended. Companies created after the effective date of January 1, 2024, and before January 1, 2025, now have 90 days from the date they receive actual or public notice of registration.
Certain businesses already operating under heavy federal reporting requirements are exempt from beneficial ownership reporting requirements.
What are the penalties for failing to comply with the beneficial ownership information reporting rule?
Failure to follow beneficial ownership reporting requirements can result in a $500-per-day fine, up to $10,000 total, and up to two years in prison. Additionally, disclosing BOI without authorization carries a $500-per-day fine, up to $250,000 total, and up to five years’ prison time.
For a small business, the beneficial owner will likely be the founder because they own or control more than 25% of the company or otherwise exercise substantial control over it.
This article is for informational purposes only and should not be construed as legal advice. You may want to seek the advice of an attorney to evaluate all relevant considerations.
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