What Is A Beneficial Ownership Information Report?
Starting January 1st, 2024, owners of U.S. businesses will need to comply with new rules. The Corporate Transparency Act (CTA) is a federal law that requires business entities, like LLCs and corporations, to report information about their owners to the Financial Crimes Enforcement Network (FinCEN). These new reports are called “Beneficial Ownership Information Reports”.
Honest business owners who fail to file Beneficial Ownership Information Reports on time or can face fines and jail time.
In this article, we walk you through what Beneficial Ownership Information Reporting is, how it works, and what you need to do to comply with this new law.
What Is A Beneficial Ownership Information Report (BOIR)?
Starting in 2024, U.S. businesses need to submit Beneficial Ownership Information to FinCEN. These reports include personal information about significant people involved in the company, including owners and managers.
CTAboi.com has a Complete Guide to Beneficial Ownership Information Reporting (BOIR)
Imagine you are an FBI agent investigating a company for money laundering. What information would you need? You would want to know who the significant owners of the company are, and all the people who call the shots. You may also want to know who was responsible for getting the company setup. Business owners should prepare to submit a Beneficial Ownership Information Report with this information to FinCEN.
A Beneficial Ownership Information Report is different from a company’s incorporation or formation documents. You file these documents with a state government to register your company. You submit Beneficial Ownership Information Reports to the federal government via the Financial Crimes Enforcement Network to comply with the Corporate Transparency Act.
BOIR Checklist: What Do You Need to Report?
FinCEN requires business owners to report personal information about three types of people in their companies:
- Beneficial owners,
- Control parties, and
- Company applicants.
LLCs and corporations need to provide FinCEN with the following information for all of their beneficial owners, control parties and company applicants:
- Full name,
- Residential address,
- Date of birth; and,
- An identification document.
This information needs to be included in the company’s Beneficial Ownership Information Report.
Each person listed in a company’s Beneficial Ownership Information Report needs to provide FinCEN with a picture of an identification document.
You can use the following identification documents to complete the Beneficial Ownership Information Report:
- A drivers license,
- State, local, or tribe-issued IDs,
- A U.S. passport; or
- A foreign passport.
Who Gets Included In A Beneficial Ownership Report?
FinCEN requires LLCs and corporations to provide information about their beneficial owners, control parties and company applicants in their Beneficial Ownership Information Reports.
These are not common terms, so let’s break down who beneficial owners, control parties, and company applicants are:
Who Are Beneficial Owners?
A “beneficial owner” is any person or business entity that has a piece of ownership in a company. Typically, an LLC refers to its owners as “Members”, while a corporation refers to its owners as “stockholders”.
There are ways you can be a beneficial owner besides being a Member in an LLC, or a stockholder in a corporation. A person can be considered a beneficial owner if they:
- Have interests in the capital or profits of an LLC,
- Own any options or convertible stock in a corporation, or
- Benefit from a trust owning any company interests.
Beneficial owners need to be real people. If a business entity is an owner of another company, then that entity will also need to disclose its beneficial owners to FinCEN. For example, if an LLC owns the stock of a corporation, the LLC will need to be report its beneficial owners.
Who Are Substantial Control Parties?
A “control party” is any person or business entity that has “substantial control” over a company. In other words, control parties have a say in making big decisions for an LLC or corporation. This includes the Officers in a corporation, or the Managers in an LLC.
Additional examples of control parties include:
- Members of the Board of Directors of a for-profit corporation ,
- People with majority voting rights in an LLC,
- Trustees of an estate planning trust that is a Member of the LLC, and more.
A control party is anyone who has the authority to complete certain actions on behalf of a company. These may include:
- Signing contracts,
- Hiring employees,
- Signing checks, and
- Opening business bank accounts.
Who Are Company Applicants?
New LLCs and corporations formed after January 1st, 2024 will need to include information about their company applicants in the Beneficial Ownership Information Report. According to FinCEN, a reporting company has two company applicants:
Company Applicant 1.) The person who starts the company formation process; and,
Company Applicant 2.) The person who submits company formation documents to the Secretary of State.
If you use an incorporation service, like IncNow, to form your LLC or corporation, the first company applicant would usually be the person who placed the order. The second company applicant will be the employee of the service company who files the formation documents with the Secretary of State.
Note that the company applicant requirement only applies to new companies formed in 2024. Existing companies formed before 2024 do not need to include company applicants in their Beneficial Ownership Information Reports.
Which Business Are Exempt From Beneficial Ownership Information Reports?
FinCEN allows exemptions for certain types of businesses. There are 23 exemption categories in total. Businesses need to meet each piece of criteria for one of the exemption categories in order to qualify for an exemption.
Companies that may not have to submit Beneficial Ownership Information Reports include:
- Large operating companies with more than 20 employees in the U.S.;
- Non-profit organizations (corporations given 501(c)(3) tax exempt status);
- Publicly traded companies;
- Financial institutions;
- Regulated investment and insurance companies, and more.
Any company that is a registered business entity in the U.S. needs to submit a Beneficial Ownership Information Report to FinCEN. This includes most LLCs and corporations formed in the U.S.
According to FinCEN, any business entity that’s created by filing a document with a Secretary of State’s office is required to submit a Beneficial Ownership Information Report. Foreign companies registered to do business in the U.S. also need to file reports.
When Are Beneficial Ownership Information Reports Due?
The new rules for beneficial ownership reporting go into effect on January 1st, 2024. The company’s formation date determines when it needs to submit its Beneficial Ownership Information Report.
- New reporting companies formed in 2024 will have only 90 days to file their Beneficial Ownership Information Report.
- Existing reporting companies formed before 2024 have until January 1st, 2025 to file Beneficial Ownership Information Reports.
- All companies have only 30 days to update a Beneficial Ownership Information Report if any information changes.
Starting in 2024, all new companies formed will have only 30 days to submit a Beneficial Ownership Information Report to FinCEN. The 30 day window starts from the date that the company’s incorporation documents are filed in its home state.
Companies existing before January 1st, 2024 need to submit their Beneficial Ownership Information Reports to FinCEN before January 1st, 2025.
How to Update a Beneficial Ownership Information Report
It is important to know that the information in your company’s Beneficial Ownership Information Report must be kept up to date at all times. If a company’s beneficial ownership information changes, the company has only 30 days to submit an updated report to FinCEN.
For example, if one of the beneficial owners changes their residential address or gets a new passport, then the company’s Beneficial Ownership Information Report needs to be updated. Business owners face significant fines, and even jail time, if they do not submit complete and accurate reports to FinCEN by the deadline.
What is a FinCEN ID, and How Can It Help?
FinCEN gives individuals and companies the option to register for a FinCEN identification number (FinCEN ID). Getting a FinCEN ID can make it easier to complete and update a company’s Beneficial Ownership Information Report.
To get a FinCEN ID, you need to submit the same information required in the Beneficial Ownership Information Report.
A person needs to submit the following information to get a FinCEN ID number:
- Full name,
- Residential address,
- Date of birth; and,
- Identification document (drivers license, passport, or state-issued ID).
LLCs and corporations can also get their own FinCEN ID numbers. The following information is required for a company to get a FinCEN ID number:
- Legal name,
- Tax ID number (EIN),
- Country of formation,
- State of formation; and,
- Business address.
It is important to know that when an individual obtains a FinCEN ID number, it becomes their personal responsibility to keep their information up to date with FinCEN.
How Much Does a Beneficial Ownership Report Cost?
FinCEN does not charge a fee for companies to submit Beneficial Ownership Information Reports (BOIR). There is no fee to submit the BOIR initial report, or any updated or corrected reports.
