Starting January 1, 2024, small business owners will need to file the Beneficial Ownership Information (BOI) report. Make sure to familiarize yourself with these reporting requirements to avoid any potential issues. Owners who don’t comply may be subject to reporting violations and subsequent penalties.
This change is part of the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN)’s September 2022 ruling, which implemented the Corporate Transparency Act’s (CTA) BOI report provisions.
The Corporate Transparency Act requires corporations, limited liability companies (LLCs), and other entities organized, or registered to do business, in the United States to file a BOI report to FinCEN. It’s a one-time filing, but any changes or corrections must be filed within 30 calendar days of the updates.
The CTA describes who must file a report, what information must be provided, and when a report is due. A provision of the Anti-Money Laundering Act, the CTA authorizes FinCEN to collect this information and share it with authorized government authorities and financial institutions.
Here you’ll find a step-by-step breakdown to help your business remain compliant with BOI requirements.
Who is required to file?
Reporting companies that are required to file a BOI report include:
- A domestic reporting company: A corporation, LLC, or other entity created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe.
- A foreign reporting company: A corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or similar office.
Which entities are exempt from filing?
There are 23 types of entities that are exempt from the BOI reporting requirement. Many of these exempt entities are already regulated by federal or state government, and disclose their BOI to a governmental authority. This includes banks, insurance companies, SEC-registered companies, utilities, and 501(c) tax-exempt organizations. Inactive entities are also exempt.
The full list of 23 exemptions can be found on the FinCEN’s BOI reporting FAQ, specifically question C2. Detailed examples can be found on the BOI Small Entity Compliance Guide in chapter 1.2.
Business owners will need to determine whether their business entity is a reporting company as defined under the Corporate Transparency Act — and as a result subject to the BOI reporting requirement. Businesses that do not fall under one of the 23 types of exempt entities will have to file a BOI report.
Out of all the entities exempt from filing, the most common would be the large operating company. However, in order to qualify for this exemption, all of the following requirements must be met:
- More than 20 full-time employees employed in the United States
- More than $5 million in gross receipts or sales
- An operating presence at a physical office within the United States.
Most small businesses do not meet this definition and will have to file a BOI report. According to data from the Intuit QuickBooks Small Business Index Annual Report, 98% or more of all employers in the US are small businesses with less than 100 employees. Nearly 9 in 10 (88%) of these small business have less than 20 employees. Only 10% employ between 20 and 100 workers.
Many small businesses are impacted by the Corporate Transparency Act. Beneficial owners and company applicants will need to provide personal and sensitive information to fulfill reporting obligations.
Examples of this information include:
- A unique identifying number from an acceptable identification document, plus an image of the identification document that also includes a photograph of the individual.
What are the reporting requirements?
A reporting company created or registered on or after January 1, 2024 will need to report information about itself, beneficial owners, and company applicants (more about who qualifies as a company applicant below).
A reporting company created or registered before January 1, 2024 will need to report information about itself and beneficial owners. The reporting company does not need to provide information on company applicants.
Who qualifies as a beneficial owner?
A beneficial owner is any individual who directly or indirectly exercises substantial control over the reporting company, or who directly or indirectly owns or controls 25% or more of the ownership interests of the reporting company.
Whether an individual has substantial control over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over important decisions the reporting company makes. In addition, any senior officer is deemed to have substantial control over a reporting company.
In general, ownership interests refer to arrangements that establish ownership rights in the reporting company, such as equity, stock, or voting rights.
There are five exceptions to the definition of beneficial owner:
- A minor child, provided that a parent or guardian’s information is reported.
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual.
- An individual acting solely as an employee of a reporting company in specified circumstances.
- An individual whose only interest in a reporting company is a future interest through a right of inheritance.
- A creditor of a reporting company.
Who qualifies as company applicants?
There can be up to two individuals who qualify:
1. The individual who directly files the document that creates the entity. In the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
2. The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
Only reporting companies formed or registered on or after January 1, 2024 will have to report their company applicants.
What information do companies have to report?
A reporting company will have to report its:
- Full legal business name
- Any trade names, doing business as (DBA), or trading as (t/a) names
- Complete current street address of principal place of business if that address is in the United States. For reporting companies whose principal place of business is outside the U.S. border, the current address from which the company conducts business in the United States
- Jurisdiction of formation or initial registration (state, tribal, or foreign jurisdiction)
- Taxpayer Identification Number (TIN). Foreign reporting companies without a TIN will be required to provide a foreign tax identification number.
For each individual who is a beneficial owner or a company applicant, a reporting company will have to report the individual’s:
- Full legal name, date of birth, and complete current address. A business address is required for a company applicant who forms or registers an entity during such company applicant’s business.
- Unique identifying number from an acceptable non-expired identification document (U.S. passport; state, local, or tribal identification document; state-issued driver’s license; foreign passport).
- State or jurisdiction that issued the identification document
- Image of the identification document that also includes a photograph of the individual.
When to file a BOI report
The due date of the initial BOI report depends on when the reporting company was created.
- If the reporting company was created or registered before January 1, 2024, the initial BOI report is due no later than January 1, 2025.
- If the company is created or registered on or after January 1, 2024, and before January 1, 2025, the initial BOI report is due within 90 calendar days of the date the company is created. This 90-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
- If the company is created or registered on or after January 1, 2025, the initial BOI report is due within 30 calendar days of the date the company is created. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
Once the initial report has been filed, existing and new reporting companies will have to file updated reports within 30 calendar days after a change occurs. Changes include updates to previously reported informed about the reporting company itself, or its beneficial owners and beneficial ownership information.
Corrected reports are required when previously reported information was inaccurate when filed. Corrected reports are due within 30 calendar days after the reporting company becomes aware or has reason to known of an inaccuracy.
Where to find the BOI form, and how to file
FinCEN has opened the platform to file a report using the BOI E-Filing System. The link can be found here.
Reporting violations
The CTA makes it unlawful for any person to willfully provide false or fraudulent beneficial ownership information to FinCEN, or to willfully fail to report complete or updated beneficial ownership information. The CTA states that a person violating the BOI reporting obligation shall be liable for a civil penalty of up to $500 for each day a violation continues or has not been remedied, up to $10,000, and imprisoned for up to two years.
How will this impact small business owners, and where to additional resources
Given the amount of recordkeeping, reporting requirements, nature of the information reported, due diligence needed, and substantial penalties for noncompliance, small business owners should begin the information gathering process for these reporting requirements and prepare accordingly for the filing of the BOI report.
Consider consulting with your tax professional, lawyer, or professional advisor who is already inherently familiar and equipped with this information for guidance. For business entities with complicated ownership structures, additional analysis will be required to determine if an individual should be included as a beneficial owner.
Additional factors to consider going forward include changes to ownership interests and previously reported information, as updated reports and corrected reports are due within 30 calendar days.
Additional resources and information, along with current and ongoing updates, can be found on FinCEN’s BOI website.
