Last year, the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury Department, announced its final rule requiring many entities to file a beneficial ownership information report in 2024. Some of your clients may not yet be aware of this new reporting requirement, let alone whether it applies to them. In this article, I’ll discuss some key details they should know and how you, as their trusted advisor, might assist them with this critical compliance requirement.
What is the purpose of the BOI report?
The report is mandated under the Corporate Transparency Act, a federal law requiring many companies to identify their beneficial owners, i.e., individuals who own at least a 25% interest in — or have substantial control over — an entity. The reporting requirement is designed to provide transparency about who owns entities and thus help strengthen national security and protect financial systems by detecting and preventing criminal activity such as fraud, drug trafficking, money laundering and other illicit activities.
Which companies must file a BOI report?
If a domestic or foreign entity meets FinCEN’s definition of a “reporting company” and does not qualify for an exemption, it must submit a BOI report.
- Domestic reporting company: A corporation, LLC or any business entity created through filing a registration document with a secretary of state (or similar) office under the law of a state or Indian tribe.
- Foreign reporting company: A corporation, LLC or other entity formed under the law of a foreign country that filed a document with a secretary of state or any similar office to register to do business in any U.S. state or tribal jurisdiction.
That means most
Meanwhile, sole proprietorships and general partnerships do not have to report beneficial ownership information because they are not officially registered entities.
Some entities that meet the reporting company definition may also be exempt. FinCEN’s reporting rule has named
- Exemption 1 – Securities reporting issuer
- Exemption 2 – Governmental authority
- Exemption 3 – Bank
- Exemption 4 – Credit union
- Exemption 5 – Depository institution holding company
- Exemption 6 – Money services business
- Exemption 7 – Broker or dealer in securities
- Exemption 8 – Securities exchange or clearing agency
- Exemption 9 – Other Exchange Act registered entity
- Exemption 10 – Investment company or investment adviser
- Exemption 11 – Venture capital fund adviser
- Exemption 12 – Insurance company 13 – State-licensed insurance producer
- Exemption 14 – Commodity Exchange Act registered entity
- Exemption 15 – Accounting firm
- Exemption 16 – Public utility
- Exemption 17 – Financial market utility
- Exemption 18 – Pooled investment vehicle
- Exemption 19 – Tax-exempt entity
- Exemption 20 – Entity assisting a tax-exempt entity
- Exemption 21 – Large operating company
- Exemption 22 – Subsidiary of certain exempt entities
- Exemption 23 – Inactive entity
I recommend referring to FinCEN’s
What information is requested in the beneficial ownership information report?
The BOI report collects various details about reporting companies, their beneficial owners, and their company applicants.
Reporting company information
- Entity’s full legal name;
- Jurisdiction (state, tribal or foreign country) where the entity was formed;
- Principal business address in the U.S.;
- Any DBAs, trade names, fictitious names;
- Taxpayer federal ID number (TIN, Social Security Number,
EIN ).
Beneficial owner and company applicant information
- Individual’s full legal name;
- Birthdate;
- Residential street address (in some instances, company applicants should use the business address instead);
- Personal identification number and issuing jurisdiction from a non-expired U.S. passport, state driver’s license, or other ID document issued by a state, local government or tribe — also an image of the ID document. (If the individual doesn’t have any of those forms of identification, they may use a foreign passport.)
FinCEN offers beneficial owners, company applicants and reporting companies the option to obtain a FinCEN identifier, a unique ID number, which they can use in their BOI report to streamline the filing process. Individuals may request a FinCEN identifier through an electronic application. A reporting company can request one by checking the designated box on its BOI report. Getting a FinCEN identifier is not mandatory.
When are beneficial ownership reports due?
FinCEN will begin accepting the reports on Jan. 1, 2024. They will be submitted electronically through FinCEN’s secure online filing system. You and your clients will be able to find instructions for completing the BOI report form on
BOI report deadlines
- Reporting companies created or registered to do business before Jan. 1, 2024 – Initial BOI report is due by Jan. 1, 2025.
- Reporting companies created or registered on or after Jan. 1, 2024 and before Jan. 1, 2025 – Initial BOI report is due within 90 days of the entity’s formation.
- Reporting companies created or registered on or after Jan. 1, 2025 – Initial BOI report is due within 30 days of the entity’s formation.
The BOI filing is free, and BOI reports are not required annually or on any other recurring basis. However, entities must report any changes or corrections to their BOI information within 30 calendar days of when the change occurred or when they became aware of an inaccuracy.
Who is considered a beneficial owner?
A beneficial owner is any individual who owns or controls at least 25% of the ownership interests in a reporting company and/or who directly or indirectly exercises substantial control over the entity.
An ownership interest can be one or more of the following:
- Stock;
- Equity;
- Capital or profit interest;
- Voting rights;
- Any instrument convertible into stock, equity, voting rights, or capital or profit interest;
- Options or other non-binding privileges to buy or sell any of the interests mentioned above;
- Any other contract, instrument or mechanism to establish ownership.
If an individual meets at least one of the four criteria below, they are considered to have substantial control and are considered a beneficial owner:
- They have a senior position of authority — e.g., president, CEO, CFO, COO, general counsel, etc..
- They are authorized to appoint or remove any senior officer or a majority of the board of directors (or other governing body).
- They make or influence the reporting company’s critical business and financial decisions by the reporting company.
- They have some other form of substantial control over the reporting company.
If a reporting company has multiple people who fit the description of a beneficial owner, it must report all of them in its BOI report.
Reporting rules vary for certain types of beneficial owners (such as individuals whose ownership interests are held through one or more entities exempt from the reporting company definition, entities meeting the pooled investment vehicle exemption criteria, and minor children).
Exclusions from the beneficial ownership disclosure
Some individuals who otherwise meet the beneficial owner description may be excluded from a company’s BOI Report. The five exceptions include:
- A minor child (provide information about the child’s parent or legal guardian instead).
- An individual who acts on behalf of a beneficial owner as a nominee, intermediary, custodian or agent.
- An employee who derives their control and economic benefits from the reporting company solely from their status as an employee of the company and they do not hold a senior office at the company.
- An individual whose only interest in the reporting company is a future interest through inheritance. (After the person inherits their interest, they must be reported as a beneficial owner.)
- An individual who is a creditor of the reporting company.
Who is a company applicant?
Domestic reporting companies created on or after Jan. 1, 2024 and foreign reporting companies first registered to do business in the U.S. on or after Jan. 1, 2024 must report their company applicants on their BOI reports. Domestic reporting companies formed before Jan. 1, 2024 and foreign reporting companies first registered to do business in the U.S. before Jan. 1, 2024 do not have to report company applicants.
A company applicant must be an individual; it cannot be a company or legal entity. The person will either be reported as: 1) a direct filer who physically or electronically files a reporting company’s registration documents to create the business entity, or 2) an individual primarily responsible for directing and controlling the entity’s registration filing, without personally submitting the formation document with the state.
All reporting companies must report a direct filer, but the second classification of company applicant only applies if more than one person was involved in preparing and filing the reporting company’s formation or registration documents.
An entity will report up to two company applicants: one direct filer and a maximum of one person who directed or controlled the filing.
Penalties for failing to file a BOI report
With steep civil penalties of up to $500 per day for each day a BOI report is late, business owners will want to make sure they get theirs in on time. Moreover, willful failure or attempt to provide false or fraudulent beneficial ownership information could bring criminal penalties, including imprisonment for up to two years and/or a fine of up to $10,000. There’s a lot at risk, so your clients should take compliance seriously.
Ways you can help your clients
Beneficial ownership information reporting is uncharted territory, so your clients will likely have questions and may need your expert assistance.
You can direct them to FinCEN’s online resources for much of the information they’ll need:
And, depending on how complicated their entity’s ownership structure is and if they offer varied types of ownership interests, they might require your help determining who should be reported as their beneficial owners. This is a prime opportunity to provide additional value to your business clientele and further secure your role as a trusted advisor and reliable partner in their success.
