Understanding Beneficial Onwership Reporting Requirements

The Corporate Transparency Act became law on January 1, 2024, requiring millions of companies to file a Beneficial Ownership Information (BOI) Report. Beneficial ownership refers to the individuals who own or control a legal business entity. Governments around the world have implemented Beneficial Ownership Information Reporting requirements to ensure greater transparency in business operations, and to combat financial crimes, money laundering, and corruption. Non-compliance can result in fines and jail time.

In a recent webinar explaining BOI reporting, the National Federation of Independent Business (NFIB) gave three reasons why the new federal rules are in place. First, the NFIB points out that states do not collect beneficial owner information. Second, it states that the BOI rules help catch malign actors who conceal ownership to launder money, finance terrorism, other illicit activities. And third, NFIB states that the federal law providing for BOI collection is needed to protect national security and counter money laundering.

Financial Crimes Enforcement Network

Combatting Financial Crimes

The primary goal of these reporting requirements is to combat financial crimes such as money laundering and corruption. When authorities know who the beneficial owners are, they can track and investigate suspicious financial activities. By disclosing the owners, small businesses contribute to a more transparent and accountable business environment. Compliance is increasingly global. Many countries have adopted international standards for beneficial ownership disclosure to align with global efforts against financial crimes.

Compliance with Beneficial Ownership Information Reporting fulfills legal obligations and helps businesses maintain a positive reputation. Transparent business practices instill trust among customers, partners, and stakeholders.

Who Files a BOI Report?

The NFIB states the BOI requirements impact both domestic and foreign reporting companies. Any corporation, LLC, or other entity that was created by filing a document with a Secretary Of State needs to file a BOI report. Some businesses are exempt from these reporting requirements, including many financial institutions such as banks, credit unions and insurance companies. One interesting exemption is for “large operating companies,” which must have more than 20 employees on a full-time basis in the United States, have an operating presence at a physical office within the United States, and must have filed in the previous year federal income tax returns in the United States demonstrating more than $5 million in gross receipts or sales. A business entity must meet all three criteria.

Take this quiz to see if your business must complete a BOI report.

Identify Beneficial Owners and Collect Information

Small businesses need to identify and verify the individuals who have a significant influence or ownership stake in the company. This may include shareholders, partners, and others with decision-making authority. Once a business identifies these owners, the business must collect and document relevant information about them. This typically includes personal details such as name, address, and identification documents.

Submit Reports to Authorities

Small businesses may be required to submit Beneficial Ownership Information Reports to relevant government agencies. It is crucial to understand the specific reporting requirements and deadlines. A business created before January 1, 2024, must file a BOI report by January 1, 2025. Those created in 2024 must file within 90 calendar days after receiving notice of creation.

A business files a BOI report electronically with the FinCEN, that’s the Financial Crimes Enforcement Network. There is no state filing, and no fee for filing. You can use the FinCEN website or use a third-party service provider. A business should also be prepared to provide periodic updates on beneficial ownership information. Changes in ownership or control must be promptly reported to maintain compliance.

Small business owners must prioritize understanding and adhering to these requirements to safeguard their operations, contribute to global anti-corruption efforts, and maintain the trust of their stakeholders. As regulatory landscapes evolve, staying informed and proactive in compliance is key to the long-term success of small businesses in the modern business world.

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