Starting January 1, 2024, small businesses nationwide must file a BOI (Beneficial Ownership Information) report with FinCEN, a U.S. Department of Treasury branch. The filing deadline for existing businesses is January 1, 2025.
Does this new requirement apply to your company, and what information do you need to provide? Learn what Beneficial Ownership Information reporting means for small business owners.
What is the upcoming Beneficial Ownership Information Reporting rule?
The Beneficial Ownership Information reporting rule flows from the Corporate Transparency and Anti-Money Laundering Acts of 2019 and 2020. The CTA requires certain U.S. businesses and foreign companies registered to do business in the U.S. to provide information about their beneficial owners.
In September 2022, FinCEN (the Financial Crimes Enforcement Network) outlined the Beneficial Ownership Information reporting provisions. FinCEN has now consolidated the reporting rules and guidelines for business owners. The new rule takes effect at the beginning of 2024.
Why is it being introduced?
As part of the Corporate Transparency Act, the Beneficial Ownership Information reporting requirements aim to counteract financial crimes like tax evasion and money laundering. The new reporting rules seek to promote accountability and transparency and fight the unlawful use of corporate entities.
Who can access beneficial ownership information?
Beneficial Ownership Information will be accessible to local, state, federal, and tribal entities. Some foreign officials may also request access to BOI through a U.S. federal agency for legitimate national security and law enforcement purposes.
Additionally, under certain circumstances and with the reporting company’s consent, some financial institutions may access Beneficial Ownership Information.
FinCEN is under obligation to keep Beneficial Ownership Information safe. The data will enter a secure system with strict protocols that limit access to authorized users only.
How and When To Report
Existing small businesses considered “reporting companies” must file their BOI report anytime between January 1, 2024, and January 1, 2025. New businesses formed after the start of 2024 have 30 days after receiving notice of formation to file their BOI report.
Your business will submit the BOI report directly via FinCEN’s electronic filing system. Reporting is free of filing fees.
Who must report?
To summarize what Beneficial Ownership Information reporting means for small business owners: any S-Corp, C-Corp, or limited liability company (LLC) counts as a “reporting company” and must file a BOI report unless the company falls under the exemptions listed in FinCEN’s guidelines. If your business isn’t an LLC or a corporation, you may still need to submit a BOI report if you had to file a formation document when establishing your company.
On its face, this means most general and sole proprietorships will likely be exempt from filing. However, if you’re unsure whether you are required to file a BOI report, consult an experienced lawyer who understands business compliance issues.
Domestic Reporting Companies
Domestic reporting companies include any LLCs, corporations, and similar entities, the creation of which involves filing a formation document with an office like a secretary of state. The term “domestic” applies to all U.S. states, commonwealths, territories, and tribal lands.
Foreign Reporting Companies
Foreign reporting companies include all LLCs, corporations, and similar entities established under foreign law and licensed to do business in the U.S.
Exemption
The BOI Reporting Rule exempts some business entities from filing. Check the FinCEN compliance guide to determine whether these exemptions cover your company.
Companies Listed as Exempt
FinCEN lists 23 types of business entities as exempt from filing the BOI report. These include banks, governmental authorities, credit unions, insurance companies, tax-exempt entities, and more.
Inactive Entities
Some inactive entities under the ownership of a U.S. person may also be exempt from BOI report filing. The exemption applies if the entity meets certain requirements, like being established no later than January 1, 2020, holding no assets, and not being currently engaged in business.
Large Operating Companies
If your company falls under the definition of a “large operating company” under FinCEN rules, you may not need to file the BOI report. Generally, a “large operating company” is a business that employs more than 20 full-time workers, makes over $5 million a year in sales or gross receipts, and operates in a physical office in the United States.
FinCEN’s compliance guide lists more details about exemption requirements for large operating companies.
What is a beneficial owner?
A “beneficial owner” is anyone who directly or indirectly controls the reporting company. Individuals who control or own at least 25% of the reporting company via stocks, shares, or other types of equity also count as beneficial owners.
Direct control over a company refers to matters like board representation, holding the majority of voting rights, and profit interest. Indirect control includes authority over an intermediary entity with substantial power over the reporting company or ownership interest through nominees, agents, or custodians.
Senior officers like company presidents, CEOs, CFOs, and COOs are beneficial owners. The category also includes individuals who have the power to appoint or remove senior officers in the company. Finally, important decision-makers, meaning any persons who substantially influence key decisions like contracts, investments, mergers, and reorganization, also count as beneficial owners.
A reporting company must identify and include every beneficial owner in its BOI report. The reporting rules place no limit on the number of people who may appear as beneficial owners.
What is a company applicant?
A company applicant is the person who filed the document that registered the reporting company. If several people controlled or directed the filing, the individual who carried the primary responsibility was the company applicant.
What information must be reported?
Let’s briefly outline what Beneficial Ownership Information reporting means for small business owners regarding the details you must provide in your company’s BOI report.
Reporting Company
Your report will include some basic facts about your company, including its legal name, “doing business as” names, physical address, TIN, and jurisdiction of formation.
Beneficial Owners and Company Applicants
You’ll also need to disclose personal information about each beneficial owner. Specifically, you’ll provide their legal name, date of birth, physical address, and the individual’s ID from an official document like a passport or driver’s license. You must also include an image of the original identifying document.
Reporting companies that form starting January 1, 2024, must provide details regarding company applicants.
How To Update Information Once Filed
Business entities often undergo various changes. What if you file your report, but then your company adds or removes beneficial owners? In this case, you’ll have 30 days to file an updated report with FinCEN.
Similarly, if you realize that your BOI report included a mistake or an inaccuracy, you must submit an updated report within 30 days of discovering (or the date when you should reasonably have discovered) the error.
Penalties for Non-Compliance
Non-compliance with BOI reporting requirements may lead to serious civil and criminal penalties. Generally, if you make an honest mistake and file a corrected report within 90 days of the original filing deadline, you usually don’t have to worry about penalties under the Corporate Transparency Act.
However, businesses that deliberately conceal Beneficial Ownership Information from FinCEN or knowingly provide false information may face unpleasant consequences. An example of fraudulent reporting would be providing false identification documents for the beneficial owner(s).
Civil Penalties
A business that fails to provide a full and accurate BOI report may face a fine of up to $500 a day until it supplies the compliant report.
Criminal Penalties
Criminal penalties for non-compliance with BOI reporting requirements include a fine as high as $10,000 and up to two years in prison. The accountable persons would be the senior officers of the business who submit a false or incomplete BOI report.
Moreover, individuals may face civil or criminal penalties if their actions prevent a company from filing a correct BOI report. For example, this may happen if one of the beneficial owners refuses to provide their full identifying information while knowing the company needs it to file its BOI report or supplies false details while knowing the data will pass to FinCEN.
Since BOI reporting is a new rule, you may have various questions and concerns about what it means for your business. The first step is determining whether your company has to file a BOI report and how to ensure compliance and avoid penalties.
When in doubt, contact an attorney to verify that your business follows all the updated reporting guidelines. In this case, erring on the side of caution could save your reputation and your business.
Blake Harris Law Can Help Your Small Business Ensure Compliance
Do you have more questions about what Beneficial Ownership Information reporting means for small business owners? Contact us at Blake Harris Law for reliable legal counseling on BOI reporting and other compliance-related matters. We can help your company stay on the right side of the law while protecting your business assets.
