What is a BOI Report?

On January 1, 2024, new beneficial ownership reporting guidelines took effect as part of the Corporate Transparency Act (CTA). Going forward, many small business entities must report beneficial owners to FinCEN or risk penalties and fines. If you’re wondering, “What is a beneficial owner?” read on to learn some important features of the new Beneficial Ownership Information (BOI) reporting requirements and what the new beneficial ownership rules may mean for your small business.
A Small Business Owner filing a beneficial ownership report as the name implies, a Beneficial Ownership Information report (BOI report) generally provides details about the owner(s) and individuals who control a company.

Who are Beneficial Owners?

Under the Corporate Transparency Act (CTA), ownership includes those that own 25% or more of a company either directly or indirectly. This includes stockholders, partners, LLC members, and owners of a business that owns another business that is subject to BOI reporting. Let’s consider an example. Allen, Bill, and Chuck LLC own Acme LLC equally. Chuck LLC has one member, Chuck, who owns 100% of the business. Under the CTA, Allen and Bill are direct owners of Acme LLC because each personally has a stake in the business greater than 25%. Chuck is an indirect owner because he is considered to own more than 25% of Acme LLC due to his ownership of Chuck LLC. Under the CTA, Allen, Bill, and Chuck are each considered beneficial owners. All three must include their information in the BOI report for ABC LLC.

Who controls a business?

Now, let’s talk about what constitutes control of a company. When we say “control,” in this case, we refer to people who either influence, directly or indirectly lead, or determine business decisions and choices. Generally, this includes the top senior officers and managers within a company. Continuing the example above, Acme LLC hires Jim to manage and control day-to-day operations. Under the CTA, he would be considered in control of the business and, thus, a beneficial owner. The BOI report should include Jim’s information.

What is the Corporate Transparency Act (CTA)?

The Corporate Transparency Act (CTA) was passed as part of the Anti-Money Laundering Act in 2021 by Congress to help law enforcement flag and respond to financial crimes. This bill mandates many businesses to file a beneficial ownership information report to the Financial Crimes Enforcement Network (FinCEN). The stated purpose of this new requirement is to prevent malicious individuals from hiding their identities through the use of shell companies.

What business entities must share beneficial ownership information?

All domestic business entities created by registering with a state will be subject to the Corporate Transparency Act (CTA). This includes corporations, LLCs, limited partnerships, and limited liability partnerships (LLPs), to name a few. Foreign businesses that make a filing with any state are also subject to the CTA. Sole proprietors and general partnerships, which are businesses that are not created by registering with any state, are not subject to the CTA. In addition, there are other exemptions explained below. FinCEN estimates that over 32 million businesses will be required to report Beneficial Ownership Information in the first year of the program.

What business entities are exempt from beneficial owner reporting?

There are two main categories of business entities that are exempt from Corporate Transparency Act (CTA) requirements. Federally regulated business entities, such as financial institutions, publicly traded companies, and insurance companies
Large business entities with at least 20 full-time employees, over $5 million in gross receipts, and a substantial U.S. presence

What information is included in the Beneficial Ownership Information (BOI) report?

Now that you know who a beneficial owner is let’s talk about what Beneficial Ownership Information (BOI) you need to share. The business is required to submit an electronic form that includes the following information: A name, address, birth date, and a unique ID number for each beneficial owner. A unique ID number could be a driver’s license number or passport number. The unique ID may not be the owner’s social security number. A name, address, registered agent, and tax ID number for the business. Type of BOI filing (initial filing, correction, or update)
For newly created businesses, information about company applicants (more on this in the next section)

What is a company applicant?

A company applicant is a person(s) who creates/registers entity formation documents with the state or is responsible for the person who does. This can be the business owner or another individual, such as an attorney or CPA. The Beneficial Ownership Information report can list up to two company applicants. Company Applicant Example. For example, Jill from Jill’s Auto LLC hired her friend Shay’s law firm to fill out all the required paperwork to form the business. Shay’s assistant drafts the documents and files them with Shay’s approval. In this situation, Shay and his assistant are both company applicants. Jill must include their information when she provides information to FinCEN.

Who is required to report company applicants?

Only business entities created on January 1, 2024, or after will need to report information about company applicants. Business entities in existence before 2024 do not need to report company applicant information.

How is Beneficial Ownership Information going to be reported?

Qualifying businesses are required to make one initial report to FinCEN. Additional amended reports are required when there is a change to the information provided, such as a change in ownership or to correct a mistake. Generally amended reports are required within 30 days of the change.

When is the Beneficial Ownership Information report due?

When the Beneficial Ownership Information report is due depends on when you formed your entity. For entities created prior to January 1, 2024, the report is due by January 1, 2025. No reports were accepted prior to January 1, 2024. For businesses created on or after January 1, 2024, the report will be due within 90 days from the time the business receives notice that its registration is effective by the state. For example, Jill begins the process of filing her LLC, Jill’s Auto LLC, on June 1, 2024. Jill received notice that the state approved her registration, effective June 5, 2024. In this case, Jill has 90 days, until September 3, 2024, to report the information to FinCEN and avoid penalties.

What penalties may be incurred for not filing a Beneficial Ownership Information report?

The penalties for failure to comply with the Corporate Transparency Act are serious and something you should be aware of. There are three types of reporting violations that are subject to penalty: Willful failure to file a report, Providing false information Unauthorized disclosure of information. For failing to file a report or providing false information, individuals could be subject to a fine of $500 per day, up to $10,000, and up to 2 years in prison.
FinCEN Beneficial Ownership Information should only be available to authorized law enforcement agencies and financial institutions. The penalty for anyone with access to this information disclosing it without proper authorization is a fine of $500 per day, up to $25,000, and up to 5 years in prison.

What should I do now?

If you’re reading this article, you’re already headed in the right direction. We understand the urge to act quickly. The FinCEN Beneficial Ownership Information reporting system is live. Overwhelmed by the process of filing? Getitfiled-boi.com is here to help. Our easy order form will keep you compliant.