What Every Small Business Owner Needs to Know About Beneficial Ownership Information Reporting

Compliance: Every small business owner’s favorite word. Not. But soon, there will be a new compliance requirement to navigate— one that many small business owners aren’t aware of, let alone prepared for. 

The Corporate Transparency Act (CTA) will require millions of small business owners to file a Beneficial Ownership Information (BOI) report. The new requirement takes effect on January 1, 2024.

But what is a BOI report? And how will it affect you, as a small business owner? Let’s dive in and explain. 

What to know about the CTA and BOI reporting

The Corporate Transparency Act builds on the Anti-Money Laundering (AML) Act of 2020. Congress passed the AML Act to crack down on illegal activity — like money laundering, corruption, and tax fraud. Advocates believe that increasing transparency in business ownership will help prevent criminals from hiding illegal gains, cash, and other property in the U.S. And that’s where Beneficial Ownership Information (BOI) reporting requirements enter the chat.

Businesses subject to the CTA will need to file a BOI report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) and provide information about owners in the business (or any individual who controls activities in the company), and any company applicant responsible for filing. 

We’ll dig more into what goes into the report in a minute.

Will you need to file a BOI report?

Under the Corporate Transparency Act, many business entities will need to file a BOI report. This includes corporations, limited liability companies, and all other entities created by filing a document with the Secretary of State or a Native American tribal government. 

There are a few exceptions, but most exemptions apply to businesses that are already subject to substantial federal and state regulation, such as publicly traded companies and financial institutions.

Some notable exemptions include:

  • 501(c)(3) non-profit organizations
  • Tax-exempt political organizations 
  • Charitable and split-interest trusts
  • Tax-exempt assisting entities operating exclusively to provide assistance to one of the tax-exempt entities described above (as long as it is owned and controlled solely by one or more U.S. citizens)
  • Large operating companies, defined as any entity with more than 20 full-time employees, operating at a physical office in the U.S., and reporting more than $5 million in U.S. gross receipts or sales on their prior year’s federal income tax return
  • Inactive entities that existed before January 1, 2020, but are not engaged in active business

Essentially, these requirements will primarily fall on small-to-midsize businesses, and non-compliance can result in stiff civil and criminal penalties. The civil penalty is $500 per day, and criminal penalties include fines of $10,000, imprisonment for up to two years, or both.

What information is required for the BOI report?

To file a BOI report, business owners must provide specific details about the business and its owners. 

For the reporting company, this includes:

  • The business’s full legal name
  • Its trade name or “doing business as” name, if any
  • The address of its principal place of business
  • Its jurisdiction of formation
  • Its taxpayer identification number (TIN) or employer identification number (EIN)

Each beneficial owner and company applicant must share their:

  • Full legal name
  • Date of birth
  • Residential address (or the business address for a company applicant)
  • A unique identification number, such as a driver’s license number or passport number
  • An image of their driver’s license or passport

Who are beneficial owners and company applicants?

Beneficial owners of the business include anyone who directly or indirectly

  1. exercises control over the company or
  2. controls at least 25% of its ownership interest.

Company applicants include anyone who directly files the document to create the reporting company AND the person who is primarily responsible for directing or controlling the filing (if more than one person is involved).

How can small businesses prepare for this reporting requirement?

If your small business is subject to the CTA by January 1, 2024, you have exactly one year to file your BOI report. That means any “qualifying” businesses must file a first report by January 1, 2025. New companies established after January 1, 2024, must file an initial report within 30 calendar days of legally establishing the business.

While that deadline might seem far away now, we all know time flies. Don’t get caught with your compliance pants down. Instead, start preparing today by:

  • Identifying all business entities in which you have ownership. Don’t forget about LLCs and Family Limited Partnerships.
  • Reviewing your purpose within each company you have ownership. If you’re a beneficial owner of any under-utilized entities subject to reporting, consider whether they still serve a practical purpose. You may want to close the business or sell your interest if it’s not helping you meet your goals.
  • Identifying beneficial owners and company applicants in each company. Once you understand the rules, identify your business’s beneficial owners and company applicants. 
  • Collecting the necessary information. Start collecting and organizing the information needed on the company, its beneficial owners and company applicants. You may already have a lot of this information, but you may need to verify residential addresses and get copies of driver’s licenses, passports, or other documents. 
  • Discussing compliance with your advisors. Reporting entities will need to submit BOI reports electronically through a secure filing system that will be available via FinCEN’s website. Discuss with your advisors whether you plan on handling reporting yourself or would like your advisors to handle reporting for you.
  • Establishing a system for keeping your information updated. After your first report, you must report changes to the reporting company’s information and its beneficial owners to FinCEN within 30 calendar days. 

Next Steps

We know that compliance might feel like a finish line that’s always moving. But preparation is key to ensuring your business is “up to par,” and that you know what to do when beneficial ownership information reporting requirements begin. With a $500/day penalty, it’s worth it to be ready. Need help figuring out whether you’re subject to BOI reporting requirements? Want help gathering the right information (and filing it in the right place)? We can help. We’re here to keep you compliant (and sane) as a small business owner.

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