Understanding the BOI Report
The Corporate Transparency Act (CTA), passed by Congress in 2021, established a new reporting requirement called the Beneficial Ownership Information (BOI) report. This new regulation aims to make it more difficult for bad actors to hide or benefit from illicit gains through shell companies or other non-transparent ownership structures. In this guide, we’ll explain what the BOI report is, who must file it, and how to stay compliant.
What is the BOI report?
The BOI (Beneficial Ownership Information) report is a new reporting requirement under the Corporate Transparency Act (CTA). This report gathers detailed identification information about individuals who directly or indirectly own or control a company. The report is filed with the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of the Treasury, and aims to enhance transparency in company ownership to prevent financial crimes like money laundering and tax evasion.
Who is considered a beneficial owner?
A "beneficial owner" is defined as an individual who either:
- Exercises significant control over a reporting company, or
- Owns or controls at least 25% of the company's ownership interests.
Who needs to file a BOI report?
Entities required to file a BOI report are known as "reporting companies," which fall into two categories:
Domestic reporting companies
These include corporations, LLCs, and other entities created by filing documentation with a state secretary or similar office in the U.S.
Foreign reporting companies
These are companies that are formed under the laws of a foreign country but are registered to do business in the U.S. through similar filings.
Exemptions
While many companies will need to file a BOI report, there are 23 specific exemptions as outlined by FinCEN, which include entities such as:
- Publicly traded companies
- Banks and credit unions
- Securities brokers or dealers
- Investment companies and advisors
- Large operational companies with a physical office in the U.S., at least 20 full-time employees, and over $5 million in U.S. revenue
For a full list of exemptions, refer to the FinCEN website.
Filing the BOI report
Currently, the BOI report form is not yet available but will be released on January 1, 2024. This form will need to be completed by reporting companies and submitted to FinCEN, with a few guidelines on timing:
Filing Deadlines
- Companies formed before January 1, 2024: must file their initial BOI report by January 1, 2025.
- Companies formed on or after January 1, 2024: must file their initial BOI report within 90 calendar days of receiving actual or public notice of formation or registration.
Note: If changes in ownership or control occur, an updated BOI report must be filed to reflect these changes within 30 calendar days.
Information to be reported
The BOI report must include information about each beneficial owner, such as:
- Full legal name
- Date of birth
- Current residential address
- A unique identifying number from a government-issued document (e.g., passport, driver's license)
- A scan of the identification document
FinCEN will maintain this information in a secure, non-public database to ensure privacy.
Penalties for non-compliance
Failing to comply with the BOI reporting requirements can lead to severe penalties:
- Fines: a penalty of $500 per day for each day the report is late.
- Criminal penalties: up to two years of imprisonment and/or a fine of up to $10,000 for willful non-compliance.
Given the severity of these penalties, it is crucial for companies to file on time and ensure all information is accurate.
How to stay compliant?
- Familiarize yourself with the requirements and exemptions for BOI reporting.
- If your company is already formed, ensure any changes in ownership are properly documented before the end of 2024.
- Compile all necessary data on beneficial owners early to avoid last-minute scrambles.
- Work with a corporate law specialist or tax advisor who understands BOI compliance to ensure timely and accurate filing.
Final thoughts
The BOI reporting requirements are part of the U.S. government's efforts to promote corporate transparency and prevent illicit activities. It's important for business owners to be proactive in understanding their responsibilities to avoid penalties and ensure compliance. Being prepared and well-informed will make the process of BOI reporting smooth and straightforward.
If you need help navigating these new requirements, reach out to our team of experts, and we’ll ensure that your BOI report is filed correctly and on time.
