With the January 1, 2025 deadline for initial Beneficial Ownership Information (BOI) reporting approaching, it is crucial for businesses to begin preparing to meet these new federal requirements. The BOI reporting rules, part of the Corporate Transparency Act, are designed to combat financial crimes by creating transparency around who owns and controls certain businesses. Non-compliance can result in severe penalties, making it important for companies to understand their obligations now. Below, we provide an overview of the BOI reporting requirements to help you understand key aspects of this new mandate and why early action matters.
The Corporate Transparency Act (CTA) and BOI
The Corporate Transparency Act (CTA), enacted on January 1, 2021 introduced the BOI Reporting Requirements. These requirements mandate certain businesses to report specific details about individuals with significant control or ownership interests to the Financial Crimes Enforcement Network (FinCEN). The CTA aims to strengthen anti-money laundering regulations in the United States by creating a national database accessible to law enforcement and national security agencies, designed to combat the misuse of shell companies for illicit activities such as money laundering.
Defining Beneficial Ownership and Reporting Companies
Under the CTA, a beneficial owner is an individual who either directly or indirectly holds at least 25% ownership interest in a company, or exercises substantial control over the business. Substantial control encompasses activities such as making key decisions, appointing or removing executives or board members, or holding senior officer positions like CEO or CFO. This control can be exercised directly or through other means, including relationships with third parties or financial arrangements.
Businesses required to submit BOI reports, known as reporting companies, include domestic companies (such as corporations and LLCs) formed through a formal filing process with the secretary of state or equivalent office, as well as foreign companies registered to conduct business in the U.S. under state laws.
However, the CTA provides exemptions for 23 categories of entities. These exemptions include publicly traded companies, government agencies, financial institutions like banks and credit unions, non-profit organizations classified under 501(c), and inactive entities meeting specific criteria. Additionally, large operating companies are exempt if they have more than 20 full-time employees in the U.S., report more than $5 million in gross receipts or sales on their previous year’s tax return, and have a physical business location in the U.S.
Required Information and Reporting Process
Reporting companies must provide detailed information about both the company and its beneficial owners. For the company, this includes the legal name, any trade name (DBA), business address, the jurisdiction where the company is formed, and its Taxpayer Identification Number (TIN). For each beneficial owner, the required information encompasses full name, birthdate, residential address, a unique identifying number from an ID like a passport or driver’s license, and an image of the identification document. Companies formed after 2023 must also provide information about the company applicant, who is the person filing the formation documents.
BOI reports must be submitted electronically through FinCEN’s online portal. Companies can either complete an online form or upload a filled-out PDF version of the report. Importantly, there is no fee for submitting these reports.
Filing Deadlines and Timeline
The CTA establishes a staggered timeline for compliance based on when a business was established. Existing businesses created or registered before January 1, 2024 must file their first report by January 1, 2025. New businesses formed between January 1, 2024 and December 31, 2024 have 90 days from their formation date to file. Companies formed after 2024 face a tighter 30-day deadline from their formation or registration date.
Moreover, if there are changes to the beneficial ownership details, such as a new owner or a change in control, the company must file an updated report within 30 days of the change. This ongoing requirement ensures that the information in the FinCEN database remains current and accurate.
Penalties for Non-Compliance and Protection Measures
The CTA imposes significant penalties for non-compliance with BOI reporting requirements. Failing to submit the required reports or providing inaccurate information can result in civil penalties of $500 per day. Criminal penalties are even more severe, with fines of up to $10,000 and the possibility of imprisonment for up to two years.
However, the Act also includes a provision to protect companies that make good-faith efforts to comply. If a company voluntarily corrects any errors within 90 days of filing the report, they can avoid these penalties. This grace period encourages companies to review their submissions carefully and promptly address any inaccuracies.
Additional Considerations and Resources
The BOI reporting requirements represent a significant change in corporate transparency standards in the United States. Businesses, especially small and medium-sized enterprises, may need to implement new processes to collect and maintain the required information. It’s advisable for companies to consult with legal counsel to ensure full compliance with these new regulations.
To assist businesses in complying with the BOI reporting requirements, FinCEN provides several official resources:
- FinCEN’s Small Entity Compliance Guide: https://www.fincen.gov/boi
- BOI Frequently Asked Questions: https://www.fincen.gov/boi-faqs
- FinCEN e-filing portal: https://boiefiling.fincen.gov/
By understanding and adhering to these reporting requirements, companies can ensure they are compliant with the Corporate Transparency Act, thereby avoiding potential fines and penalties while contributing to the broader efforts to combat financial crimes. If you have further questions, seek guidance from qualified legal counsel to ensure proper compliance with these regulations.
Laura Everett is a principal at ARB. She provides accounting, attest, and business advisory services primarily to credit unions, auto dealerships, and buy here/pay here finance companies. As an actively involved member of the credit union industry, Laura specializes in helping credit unions with financial reporting, compliance, and mergers. Her industry expertise includes comprehensive services from financial statement audits, supervisory committee audits, and internal audits to Bank Secrecy Act independent testing, fraud investigations, and other agreed-upon procedures.
