Beneficial Ownership Reporting & Information Guide
New beneficial ownership reporting guidelines were brought in on January 1, 2024, as part of the Corporate Transparency Act (CTA). This new regulation will affect a wide range of businesses that must report information about their beneficial owners to FinCEN to avoid potential penalties.
As a small business owner, it's essential to stay abreast of the new beneficial ownership information (BOI) reporting requirements to stay compliant. A tax professional can help you with the process if needed.
What Is a Beneficial Owner Report?
A beneficial ownership information report provides details about the owners or individuals who run a company. This includes both direct and indirect owners.
Who Is Considered a Beneficial Owner?
According to the Corporate Transparency Act, ownership includes anyone who owns 25% or more of a company's ownership interests. This can mean direct or indirect ownership and includes partners, stockholders, LLC members, or members of a business who own another business subject to BOI reporting.
Additionally, reporting companies created on or after January 1, 2024, must submit information about any individual involved in forming the company in the report information. Reporting beneficial owners is just one of the considerations when finding out how to open a business in Florida or any other U.S. state. Entrepreneurs and new business owners should keep this in mind.
Example
Atlas LLC is owned equally by Sarah, Jon, and Lupo LLC. Lupo LLC is owned by a single member, Nick.
According to the CTA, Sarah and Jon are direct owners since both own a share in the business that is greater than 25%. Nick is an indirect owner because he owns more than a 25% share thanks to his ownership of Lupo LLC.
In this case, Sarah, Jon, and Nick are all considered beneficial owners under the CTA. They must all include their information in the BOI report.
Who Else Needs to Provide Their Information in the BOI Report?
The BOI report also requires information on people who exercise substantial control over the business. This category includes senior officers, those with the authority to appoint certain officers or a majority of directors, important decision-makers, and others who exercise “substantial control” over the business.
What Is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act (CTA) is a piece of legislation that was passed by Congress as part of the Anti-Money Laundering Act to help law enforcement identify and respond to financial crimes. The bill requires many companies to file a BOI report to the Financial Crimes Enforcement Network (FinCEN). This new requirement aims to prevent individuals with malicious intent from hiding their identities through the use of shell companies.
Which Business Entities Must Provide Beneficial Ownership Information?
Domestic business entities formed by registering with a state are generally obliged to report beneficial ownership information. Overseas businesses that file with any state are also subject to the CTA. A local business that registers in Jacksonville, Florida would therefore face the same obligations as a foreign company that registers in the state of Florida. According to FinCEN, over 32 million businesses will be affected by the CTA in the U.S. in the first year of reporting.
Which Business Entities Are Exempt from Beneficial Ownership Reporting Requirements?
Sole proprietors and general partnerships aren't subject to the CTA. This is because they don’t need to register with a state to create their businesses. The following business entities are also exempt from CTA requirements:
Business entities that are federally regulated, like financial institutions, insurance companies, and publicly traded companies.
Substantial business entities with at least 20 full-time employees, an operating presence at a physical office in the U.S., and over $5 million in gross receipts or sales as reported on their federal income tax return.
Altogether, there are 23 types of entities exempt from reporting according to the official FinCEN beneficial ownership reporting FAQs page.
Which Information Must You Include in the BOI Report?
Reporting companies must make an initial report to FinCEN which can be amended when changes in ownership occur. Include the following information in the report:
The names, addresses, birth dates, and unique ID numbers from FinCEN (not Social Security number) of each beneficial owner
The business's name, address, registered agent, and tax ID number
The type of BOI filing: initial filing, correction, or update
If your business is newly created, information about the company applicants
Can a Reporting Company Report a P.O. Box as its Address?
The reporting company address must be a legitimate U.S. street address. You can't register a P.O. box as your company's address.
When Is the BOI Report Due?
If your business was created before January 1, 2024, you must submit your report by January 1, 2025.
Companies created or registered for business in the U.S. in 2024 have 90 calendar days to report company applicant information after getting actual or public notice that their company's creation or registration is effective. This timeframe will be reduced to 30 days for new businesses formed on or after 1 January 2025.
How Much Does It Cost to File a BOI Report?
If you file your BOI report yourself, there is no charge.
What Are the Penalties for Failing to File a BOI Report?
There are potentially grave consequences for failure to comply with the CTA. There are penalties for three different types of violations:
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.
How Do You Update Your BOI If Something Changes?
You must report changes within 30 calendar days to stay compliant. This is true of any changes to the original document including a beneficial owner's address.
File Your BOI Report Sooner Rather than Later
The beneficial ownership information reporting requirement may seem like a burden on top of your regular paperwork. However, filing in time is essential to avoid penalties for non-compliance. The good news is that you only need to file once; after that, the information only needs to be updated when something changes.
If you need assistance with preparing your BOI report or don’t have time to take care of it yourself, a tax professional can help you put the pertinent information together. Don’t wait until the deadline. Find out whether you need to file a BOI report to FinCEN and get the report in sooner rather than later.
