In 2021, Congress enacted the Corporate Transparency Act (CTA), mandating that companies report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Starting January 1, 2024, non-exempt business entities must comply with this requirement.

This guide details who needs to report, what information is required, and key compliance deadlines. Understanding these aspects is crucial for avoiding penalties and ensuring adherence to the new regulations.

What Is Beneficial Ownership Information Reporting?

BOI reporting is a regulatory requirement designed to disclose the individuals who ultimately own or control a company. The goal of this transparency measure is to prevent money laundering, tax evasion, financing of terrorism, and other illicit activities by revealing the actual owners behind businesses and corporate entities.

Why Is a Company’s Beneficial Ownership Information Important?

Accurate BOI reporting ensures that individuals cannot hide behind complex or opaque ownership structures, such as shell companies. These structures are often used to disguise illegal operations and their proceeds.

Financial institutions and their regulators, with the consent of the reporting company, are allowed to use this information for due diligence and regulatory compliance, verifying identities, and assessing transaction legitimacy.

Defining Beneficial Ownership

Beneficial ownership refers to the individuals who ultimately own or control an entity, even if the ownership is indirect. According to the CTA, a beneficial owner is anyone who owns at least 25% of a company’s equity interests or exercises substantial control over the entity [1].

What Qualifies as Ownership Interest?

Ownership interest typically refers to any arrangement that grants ownership rights in the reporting company. This can include equity shares, stocks, voting rights, or other mechanisms that establish ownership as listed in Section 2.2 of the BOI Small Entity Compliance Guide.

What Does Substantial Control Mean?

According to FinCEN, an individual is considered to be exercising substantial control if they meet any one of the following criteria.

  • Senior Officer: This includes roles such as the company’s president, chief financial officer, chief executive officer, chief operating officer, general counsel, or any officer performing similar functions.
  • Authority to Appoint or Remove: Individuals who have the authority to appoint or remove specific officers or a majority of the directors.
  • Important Decision-Maker: Anyone who plays a significant role in decision-making for the company.
  • Other Forms of Substantial Control: Individuals with any other substantial influence over important decisions in the company.

Beneficial Owners Who Are Exempt

There are five specific exceptions to who is considered a beneficial owner, and the reporting company is exempt from including that person as a beneficial owner in its BOI report. The exceptions include the following.

  1. Minor Child: This exception is applicable only when the parent or legal guardian’s information is provided instead of the minor child’s. Once the minor reaches the age of majority, this exception is no longer valid.
  2. Nominee, Intermediary, Custodian, or Agent: Individuals providing routine advisory or contractual services (like tax professionals) generally fall under this exception. However, the actual beneficial owner must still be reported in these cases.
  3. Employee: An individual can be exempt if they meet the following three conditions:
    1. They operate under the employer’s instructions on work tasks and methods.
    2. Their significant influence or economic benefits from the reporting company are solely due to their employment.
    3. They do not hold a senior officer position within the company.
  4. Inheritor: This exception applies if an individual’s only stake in the company is a future interest obtained through inheritance, such as via a will. Once the individual actually inherits the interest, the exception is no longer applicable.
  5. Creditor: If the individual is entitled to payments from the company to fulfill a loan or debt—and this entitlement is their only ownership interest in the company—they fall under this exception.

BOI Reporting Requirements

It is essential for companies to understand and adhere to the specific requirements for reporting beneficial ownership information to remain compliant with FinCEN regulations.

Who Needs to Report

Reporting companies encompass a wide range of business entities, including the following.

  • Domestic Reporting Companies: Corporations, limited liability companies (LLCs), and other similar entities created or registered with a secretary of state or similar office in the U.S.
  • Foreign Reporting Companies: Entities formed outside the U.S. that have registered to do business within the U.S.

Certain large operating companies, publicly traded companies, and financial institutions are exempt from these requirements due to existing transparency obligations. Furthermore, there are 23 specific types of entities that are exempt from the reporting requirements [1] and are not required to file a BOI report.

Reporting Deadlines

Companies are required to report beneficial ownership information using the online secure BOI E-Filing System according to the following schedule.

  • Reporting Companies Created Before January 1, 2024: These entities must submit their initial BOI reports to FinCEN by January 1, 2025.
  • Any Reporting Company Created in 2024: The initial BOI report is due within 90 calendar days of receiving actual or public notice that the company’s creation or registration is effective.
  • Companies Established in 2025 and Beyond: These entities must file their initial BOI report within 30 calendar days after the company receives actual notice or by public notice—whichever comes first—that its creation or registration is effective.
  • Changes to Previous BOI Reports: All reporting companies must update their BOI report within 30 calendar days of any change in the reported information, including changes in beneficial owners.

What Information Is Required?

The Financial Crimes Enforcement Network (FinCEN) mandates that both domestic and foreign reporting companies file beneficial ownership information.

For each beneficial owner, this includes:

  • Full legal name
  • Date of birth
  • Current residential address
  • The identification number, issuing authority, and image of one of the following valid documents:
    • U.S. driver’s license
    • U.S. passport
    • Identification card/document issued by a state (including U.S. territories and possessions), local government, or tribe

Note: A valid foreign passport can be used if none of those documents are available.

The company must also provide details, including:

  • Full legal name
  • All trade and “doing business as” names
  • Complete business address
  • State, tribal, or foreign jurisdiction of formation
  • Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) and Employer Identification Number (EIN)
  • Foreign reporting companies without a TIN must report a tax ID number issued by a foreign country along with the issuing jurisdiction’s name.

Additionally, reporting companies formed on or after January 1, 2024, must submit information on the individuals who established the company, known as “company applicants.”

Company applicants fall into two categories:

  1. The person who actually filed the document that created or registered the company
  2. The person who was mainly responsible for directing and/or controlling the filing of the document

Compliance and Penalties

Failure to comply with BOI reporting obligations can result in significant civil and criminal penalties. Companies may face fines of $500 per day for the duration of the violation and legal consequences—up to two years of imprisonment and/or a fine of up to $10,000—if they willfully fail to file accurate information in a timely manner or provide fraudulent information.

Opting for BOI Reporting Services

Understanding the intricacies of who qualifies as a beneficial owner and the criteria for 25% beneficial ownership, as well as identifying those with direct or indirect control over a business, can be complex.

At Alpine Mar, we specialize in BOI Reporting Services to simplify this process for you. From initial report preparation to ongoing compliance management, we provide comprehensive and affordable support, ensuring your business meets all regulatory obligations with ease and efficiency.

Best Practices for Continued Compliance

To maintain compliance with beneficial ownership reporting requirements, we recommend that companies do the following.

  • Conduct Regular Audits: Regularly review and update beneficial ownership information to ensure accuracy.
  • Educate Stakeholders: Ensure that all relevant parties, including directors and officers, understand their reporting obligations.
  • Implement Robust Systems: Use secure and efficient systems for collecting and reporting beneficial ownership information.
  • Seek Professional Advice: Consult with legal and financial experts to navigate complex regulatory landscapes.

Who Has Access to the Beneficial Ownership Information?

FinCEN allows federal, state, local, and tribal authorities, along with certain foreign officials who make a request through a U.S. federal agency, to access beneficial ownership information. Access is strictly regulated, and FinCEN ensures the data is used exclusively for authorized purposes, such as national security, intelligence, law enforcement, and regulatory compliance [1]. Unauthorized disclosure or misuse of this information can lead to severe penalties.

International Perspectives on Beneficial Ownership Reporting

Many countries are adopting beneficial ownership reporting regulations to combat financial crimes. Aligning with international standards and guidelines from bodies like the Financial Action Task Force (FATF)—which provides guidelines to ensure consistent and effective beneficial ownership transparency—can aid multinational corporations in complying with global practices.

A Warning about Fraudulent FinCEN Communications

An alert issued by the Florida Division of Corporations states that FinCEN has reported recent fraudulent attempts to solicit information from individuals and entities subject to the CTA. FinCEN does not send unsolicited requests. Be cautious of fraudulent messages claiming to be from FinCEN because they may ask you to click on links or scan QR codes that are not legitimate.

Navigating Compliance Successfully

Effective beneficial ownership reporting is essential for maintaining corporate transparency and ensuring regulatory compliance. You can avoid significant penalties and uphold high standards of business integrity by understanding and adhering to reporting requirements.

Investing in robust reporting practices and professional BOI reporting services, like those offered by Alpine Mar, ensures that your company remains compliant and well-positioned for long-term success. This proactive approach not only simplifies compliance but also protects your business’s reputation and bottom line.

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