Let’s Talk Beneficial Ownership Information (BOI) Reporting

Beneficial Ownership Information (BOI) reporting was implemented under the Corporate Transparency Act (CTA) and aims to curb financial crimes such as money laundering, tax evasion and terrorist by increasing transparency in business ownership.
It came into effect on January 1, 2024, and is a new mandatory filing requirement for most U.S. businesses. A beneficial owner is defined as any individual who directly or indirectly owns or controls 25% or more of a company or exercises substantial control over it.
The information that must be reported includes:

• Full legal name of the beneficial owner
• Date of birth
• Current residential or business address
• A unique identifying number (such as a passport or driver’s license number)

Who Needs to File?

The BOI reporting requirement applies to most for-profit business entities in the U.S., including:

• Corporations
• Limited Liability Companies (LLCs)
• S-Corporations
• Limited Liability Partnerships (LLPs)

However, there are some exemptions. Large operating companies, certain regulated entities like banks, and government entities may not be required to file, provided they meet specific criteria. For most businesses, though, BOI reporting will be a new and necessary compliance obligation.

Deadlines for Filing

The deadlines for BOI reporting vary depending on when a company is created:

• Entities created before January 1, 2024: The BOI report must be filed by January 1, 2025.
• Entities created on or after January 1, 2024, and before January 1, 2025: The report must be submitted within 90 days of the creation or registration date.
• Entities created on or after January 1, 2025: The report must be filed within 30 days of creation or registration.

These deadlines are strict, and failure to comply can result in severe penalties, including fines of up to $500 per day, with a maximum fine of $10,000, and even potential criminal charges.

So, whilst it all seems pretty straightforward, the report interface does seem to allow business owners to submit insufficient information and, even if the report contains errors, you will still receive a filing confirmation so you think you have complied but you may still expose your business to fines for filing inaccurate reports.

Be warned, FinCEN does expect you to read and fully understand their 60-page manual and that comes with understanding FinCEN speak. Here’s just a few of the main terms on the forms that may mean something completely different to you when you first look at the form.

• Company Applicant. Most business owners might initially assume that the “company applicant” refers to themselves as the owner or perhaps the member who is completing the form itself. Under FinCEN guidelines, the Company Applicant is the original person (note a real person’s name) who actually filed the original company formation documents with the state or tribal authority. If you used a third-party company, such as your lawyer, you will need them to provide the details of the specific staff member who filed the reports. There is usually only one company applicant but if that staff member was directed by someone else, for instance a Senior Partner in the firm, then that Partner may be considered as Company Applicant 2.
• Substantial Control. FinTech considers any highest-level decision maker to be a beneficial owner even though they may not have an equity stake in the business which could mean you CEO, COO, CFO and others may also need to be included on your filing submission. Miss these roles at your peril!
• Current US Address. These rules are different depending on the section of the report. Reporting companies cannot use a PO Box or third party registered agent. It must be the address where business companies operate.
• Exempt Companies. Despite the 23 exemptions for BOI Reporting, over 99% of small businesses will not qualify for these.
• Updating Reports. BOI is not “One-and-Done” report. That only happens if nothing about the company or any owner ever changes. Address changes are the most obvious ones but any chance triggers a requirement to file an updated report within 30 days of the change to avoid penalties.

Challenges of BOI Reporting

While the objectives of BOI reporting are clear, businesses may face several challenges in complying with these new requirements:

1. Complexity of Ownership Structures: If you have a complex ownership structure or multiple layers of ownership, it may be challenging to identify and report all beneficial owners accurately.
2. Data Collection and Management: Gathering the required information, ensuring its accuracy, and managing this data securely can be a daunting task.
3. Compliance Costs: As mentioned above, this is not a One-and-done task so in addition to the cost of the initial data collection and reporting, there is an ongoing administrative effort required to ensure ongoing compliance.
4. Penalties for Non-Compliance: The penalties for failing to comply with BOI reporting are severe so, you will need to ensure you report accurately within the reporting deadlines to avoid fines.

Conclusion

BOI reporting represents a major shift in corporate transparency in the United States. While it serves a critical role in preventing financial crimes, the challenges it poses to businesses cannot be overlooked.

By staying informed and prepared, businesses can navigate the complexities of BOI reporting and contribute to a more transparent and secure financial system.