The Corporate Transparency Act (CTA) has introduced new reporting requirements for many small businesses in the United States. As of January 1, 2024, millions of companies are now obligated to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). This article will provide an in-depth look at what small business owners need to know about BOI reporting.
What is Beneficial Ownership Information?
Beneficial ownership information encompasses details about individuals who directly or indirectly own or control a company. The CTA was primarily introduced to help tackle illicit activities by increasing transparency of company ownership structures, aiming to prevent money laundering, fraud, and financing of terrorism.
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Who Must File a BOI Report?
There are two types of reporting companies that fall within the BOI rules set out by FinCEN:
- Domestic reporting companies: Corporations, limited liability companies, and any other entities created by filing a document with a secretary of state or similar US office.
- Foreign reporting companies: Entities formed under foreign law that have registered to do business in the US.
Some exemptions exist, including publicly traded companies, certain nonprofits, and large operating companies. However, the reporting obligation affects millions of businesses in the US and around the world that operate in the United States.
Who Qualifies as a Beneficial Owner?
Under the CTA, a beneficial owner is defined as an individual who:
- Owns 25% or more of a company, either directly or indirectly.
- Exercises substantial control over the company.
Substantial control can be exercised by:
- Serving as a senior officer (e.g., president, CEO, CFO)
- Having authority to appoint or remove senior officers or board members
- Making important decisions about the company’s business, finances, or structure
What Information Must Be Reported?
The BOI report must include the following information for each beneficial owner:
- Full legal name
- Date of birth
- Current residential or business street address
- Unique identifying number from an acceptable identification document (e.g., driver’s license, passport)
Additionally, the report must include information about the reporting company itself, such as its name(s), address, and tax identification number.
When and How to File?
The filing deadlines depend on when your business was formed:
- Existing companies (created before January 1, 2024): Must file by January 1, 2025.
- New companies (created on or after January 1, 2024): Must file within 90 days of receiving notice that the company’s creation is effective.
Filing is done electronically through FinCEN’s secure online portal. The process is free of charge.
Ongoing Reporting Requirements
BOI reporting is not an annual requirement. However, companies must file updated reports within 30 days of any changes to previously reported information, such as:
- Changes in beneficial ownership
- Changes to a beneficial owner’s personal information
- Changes to the reporting company’s information
Penalties for Non-Compliance
Failure to comply with BOI reporting requirements can result in significant penalties, including:
- Civil Penalties: Fines up to $500 daily until compliance is achieved.
- Criminal Penalties: Fines up to $10,000 and/or imprisonment for up to two years for willful violations.
- Additional Consequences: Potential exclusion from federal contracts and increased scrutiny from regulatory bodies.
Steps for Small Business Owners
- Determine if your business is a reporting company: Review the CTA’s definitions and exemptions to understand if your business is required to file.
- Identify beneficial owners: List individuals who own 25% or more of your company or exercise substantial control.
- Gather required information: Collect the necessary personal information for each beneficial owner.
- Establish a reporting procedure: Create a process for organizing, securing, and updating beneficial ownership information.
- File your report: Use FinCEN’s online platform to submit your BOI report.
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Seeking Professional Assistance
Navigating the complexities of BOI reporting can be challenging for small business owners. For those who need legal guidance in understanding and complying with these new requirements, TalkCounsel is an excellent resource. TalkCounsel connects business owners with experienced attorneys who can provide expert advice on BOI reporting and other legal matters affecting your company.
Working with a legal professional through TalkCounsel ensures that your business stays compliant with the CTA and avoids potential penalties. Our attorneys can help you:
- Determine if your business is subject to BOI reporting
- Identify all beneficial owners according to CTA definitions
- Gather and organize the required information
- Develop a system for ongoing compliance and updates
- Review and file your BOI report accurately and on time
For small business owners seeking reliable legal guidance on BOI reporting and other compliance issues, TalkCounsel presents a valuable resource that can help them navigate these challenges effectively.
