Understanding Beneficial Ownership Information Reporting

In recent times, beneficial ownership information reporting has gained significant attention. This requirement, enforced by the U.S. Treasury Department, aims to combat financial crimes by identifying the owners of businesses and individuals with substantial control over the entities as filed.

This blog post explores what this reporting entails, who must file, and the steps necessary to comply with these regulations.

What is Beneficial Ownership Information Reporting?

Beneficial Ownership Information (BOI) reporting, processed through the Financial Crimes Enforcement Network (FinCEN), helps to identify shell companies and combat such financial crimes as money laundering and tax evasion. By requiring businesses to disclose their beneficial owners, the government aims to enhance transparency.

Why Should You Care?

For many business owners, the question arises: Do I need to file? The answer largely depends on whether or not your business qualifies as a reporting company. Understanding your obligations is crucial, given that failure to comply can result in significant penalties. This blog demystifies the reporting process, thus empowering you to ensure compliance without unnecessary stress.

Who is Required to File?

To determine if you need to file, you must first understand the definition of a reporting company. There are two categories of reporting companies:

Domestic Reporting Company: Business entities, such as corporations or limited liability corporations (LLCs), formed by filing documentation with any Secretary of State or similar U.S. office.
Foreign Reporting Company: These entities are created under the laws of another country but registered to do business in the United States.

If your business fits into one of these categories, you are required to file a BOI form. However, there are some exemptions.

Examples of Reporting Companies:

Let’s consider a practical example. If you start a landscaping business but never formally complete a formal registration process, that entity is not considered a reporting company. However, upon filing your business as Bob’s Amazing Landscape LLC with a Secretary of State or similar office, that entity becomes a reporting company and must comply with the BOI requirements.

When Must You File?

Understanding the filing timeline is crucial to ensure compliance. Here’s a breakdown:

If formally created by filing with a Secretary of State or similar entity before January 1, 2024, a BOI must be filed by January 1, 2025.
If company registration occurred in 2024, you must file within 90 days of the registration date or within 30 days of receiving notice that the company has been officially established.

It is advisable not to wait until the deadline, as the volume of filings could potentially overwhelm the system, leading to delays.

NOTE: Filing your BOI is typically a one-time requirement. However, if there are any changes in ownership or with the address of any beneficial owners, you must file an updated report within 30 days of that change.

Who is a Beneficial Owner?

A Beneficial Owner is defined as any individual who:

Directly or indirectly exercises substantial control over the reporting company or
Who owns or controls at least a 25% interest in the reporting company.

It is important to note that an individual qualifies as a beneficial owner through substantial control, ownership, or both. For example, a CEO may not own shares but still holds substantial control.

Substantial control typically includes:

Senior officers such as a CEO or CFO.
Individuals with the authority to appoint or remove senior officers or the majority of the board of directors.
Individuals who can direct significant decisions regarding business operations.
Any other individuals who exert substantial control over the entity.

On the ownership side, anyone who owns 25% or more of the entity’s stock or membership interests is also considered a beneficial owner.

What Information Must Be Reported?

The reporting requirements include company information and details about each beneficial owner.

Here’s what you need to provide:

Information about the Company

The full legal name of the company.
Any trade names used, including a DBA.
Principal place of business address.
Taxpayer Identification Number (EIN).
Jurisdiction of formation.

Information about Each Beneficial Owner

Full legal name.
Date of birth.
Residential address.
Unique identifying number from an acceptable identification document, such as a driver’s license or passport).
An image of the identification document.

How to File the Report?

Filing is through the FinCEN website.

Here’s a step-by-step guide:

Visit the FinCEN website at gov/boi.
Access the BOI e-filing system.
Complete the required fields regarding your company and beneficial owners.
Upload the necessary identification documents.
Submit the form and save the confirmation for your records.

Typically, this straightforward process can be completed in about 10 to 15 minutes. There is no fee for filing.

Beware of Scams

As with any government reporting function, individuals and organizations may attempt to take advantage of the requirement. Be cautious of websites that offer to file your report for a fee. Only use reputable services if you decide not to handle the filing yourself.

Conclusion

Beneficial ownership information reporting is an important requirement for various business entities. By understanding your obligations, knowing who qualifies as a beneficial owner, and following the necessary filing steps, you can ensure compliance and avoid potential penalties. Should you have questions or concerns, consult a legal or tax professional for guidance.

Remember, you don’t have to navigate this process alone. With the right information and resources, you can successfully fulfill your reporting obligations.

Need Assistance?

Our team at LeMay & Company can provide advice or guide you through Business Owner Information (BOI) reporting. For further assistance or information, call (703) 912-7862, email, or schedule a meeting with one of our team members.