Beneficial Ownership Reporting Rules: What You Need to Know and Do

New beneficial ownership reporting rules have been implemented as part of ongoing efforts to combat financial crime and increase transparency in business ownership. For companies that don’t meet one of the exceptions to filing BOI (Beneficial Ownership Information), these regulations, stemming from the Corporate Transparency Act, represent a significant change in how businesses must disclose their ownership structure. 

In this overview, we’ll explore the basics of beneficial ownership reporting: what it is, what to do, and where to go to learn more.

What is Beneficial Ownership Reporting?

On January 1, 2024, new entity reporting rules came into effect, requiring disclosure of the beneficial owners to the Financial Crimes Enforcement Network, more commonly known as FinCEN.

Entities that do not fall under one of the 23 categories exempt from filing must report beneficial ownership reports to FinCEN disclosing information about the entity and two categories of individuals:

1)    Beneficial Owners

2)    Company Applicants (if formed 1/1/24 or later)

Beneficial Owners are defined by FinCEN as:

“[…] an individual who either directly or indirectly: (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of a reporting company’s ownership interests. “

Businesses are required to report the identity of any individuals who meet this definition. The company must report information for each beneficial owner, including the individual’s name, date of birth, and address, along with a copy of a government-issued ID, such as a driver’s license or passport.

A Company Applicant is the person who files paperwork to start or register a company or who oversees this process for businesses. In many cases, this would be an attorney who assisted with the company setup and registration process.

While there may be overlap, company applicants are distinct from beneficial owners, who have ongoing control or significant ownership of the company. While a company applicant is involved in setting up the business, they may not have a lasting role in running or owning it.

How to File a FinCEN BOI Report

To comply with the new beneficial ownership reporting rules, follow these steps:

Step 1: Determine if Your Business Needs to Report

Generally, any entity registered with a state’s Secretary of State, or a foreign company registered to do business in the United States must file. However, there are exceptions. The new beneficial ownership reporting rules are primarily intended for small corporations and LLCs. 

One of the exemptions includes entities meeting the FinCEN’s criteria for a ‘large operating company.’ To be considered a large operating company, businesses must meet the following requirements:

• Over 20 full-time employees located in the United States
• Over $5 million in gross receipts (as disclosed on the previous year’s federal tax return)
• Physical operating presence in the United States

And if your company falls under any one of 23 specific categories, it may also be exempt from reporting. A full list is available on the FinCEN website, but some of the most common examples of exempt organizations include:

• Banks
• Credit unions
• Insurance companies
• Tax-exempt entities
• Inactive entities
• Public Utilities

Step 2: Gather the Required Information

If your business is required to report, you will need to gather specific information for each beneficial owner. This includes:

• Name, date of birth, and address
• A copy of a government-issued ID, such as a driver’s license or passport

New businesses set up in 2024 must also provide this information for company applicants.  Entities created and registered to do business before January 1, 2024, are not required to report the company applicant.

Step 3: File Your Report

Reports can be filed electronically through the FinCEN website.  The timing of your report depends on when your business was established:

FinCEN Beneficial Ownership Information Filing Timeline:

• Existing companies (established prior to January 1, 2024): You must file by January 1, 2025.
• New companies (established after January 1, 2024): You must file within 90 calendar days of receiving confirmation from your state’s Secretary of State (or equivalent office) that the entity was registered. After January 1, 2025, this deadline will decrease to 30 days.
• Ownership Changes: If your business makes substantial changes to its beneficial ownership structure, such as accepting an investment in exchange for an equity stake over 25%, you must correct your previous report within 30 days of the change occurring.

If you miss the deadline or submit an inaccurate report, FinCEN offers a 30-day grace period for voluntary corrections to avoid penalties. However, willful non-compliance or providing false information can result in severe consequences, including daily fines, substantial monetary penalties, and even criminal charges in extreme cases. 

Company officers may be held personally responsible for failing to file required reports, so timely and accurate reporting should be a priority for all businesses subject to these rules.

BOI Filing Requirements for Complex Ownership Structures

Complex structures like tiered partnerships or trusts may require professional advice. These structures can make it challenging to determine who qualifies as a beneficial owner. 

Smith + Howard can provide guidance on navigating these complexities, ensuring you identify all reportable beneficial owners and comply with FinCEN’s requirements accurately.

FinCEN BOI Reporting Additional Resources

For more detailed information, you can visit:

• FinCEN’s Beneficial Ownership Information Reporting: The official FinCEN page dedicated to beneficial ownership information reporting, providing comprehensive guidance and resources.
• FinCEN’s Beneficial Ownership Information FAQs: A comprehensive list of frequently asked questions covering various aspects of beneficial ownership reporting, including exemptions, definitions, and reporting requirements.
• FinCEN’s Beneficial Ownership Information Reporting Rule Fact Sheet: This fact sheet provides a comprehensive overview of the reporting requirements, including definitions and exemptions.

Smith + Howard: Trusted Accounting and Tax Partner

At Smith + Howard, our professionals invest significant time and resources into staying up to date on the latest laws and regulations that may impact our clients. 

If your business qualifies under the beneficial ownership reporting requirements and you need advice or assistance with the process, please contact a Smith + Howard advisor today. We’re here to help you navigate these new requirements and ensure compliance.