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The Corporate Transparency Act introduces mandatory Beneficial Ownership Information Reporting rules for nearly all U.S. small businesses.

As a business owner, it is crucial to understand that your small business must file a beneficial ownership information report (BOI report) with FinCEN in 2024 to ensure compliance with the new Corporate Transparency Act. BOI reports are as mandatory as tax returns and enforced by the same U.S. Department of the Treasury, which oversees both the IRS and FinCEN. Early preparation is essential to avoid potential penalties associated with late filings of an initial report, non-compliance with the corporate transparency act (CTA), or accidentally providing incorrect information on an initial report. 

Failure to file the required information or submitting false or misleading data can result in severe consequences, including listed daily civil penalties of $500 for each day the violation continues, fines of up to $10,000, or imprisonment of up to two years – or even both. By taking the time now to familiarize yourself with the reporting requirements and seeking professional guidance, you can safeguard your business and avoid these costly penalties.

In 2021, with bipartisan support, Congress enacted the Corporate Transparency Act, which requires business owners to file Beneficial Ownership Information Reports beginning in 2024. This new law was introduced to address the lack of beneficial ownership transparency in most U.S. states, which previously allowed criminals and corrupt individuals to exploit anonymous shell companies, hide their identities, and launder illicit funds through the United States. This lack of transparency hindered law enforcement’s ability to track and prosecute criminal activities. Consequently, the U.S. will join numerous other countries that maintain a central company ownership registry.

This law applies to both new and existing U.S. small businesses as “reporting companies” under the new rules. It requires most U.S. and foreign entities to report their beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) through the beneficial ownership secure system (BOSS) they are implementing to accept these reports. Under strict safeguards and controls, FinCEN will only disclose the reported information to authorized government authorities, financial institutions, and other authorized users.

Unfortunately, FinCEN regulations make completing beneficial ownership reports with 100% accuracy difficult in many cases due to the complicated rules governing each piece of information on a BOI report. This article helps decipher these rules, but it often makes sense to discuss options with an affordable specialized attorney who can complete these filings, save time, and offload any liability away from your reporting company. You can find specialized attorneys in your state on our list, or read on below.

Does my company need to file a beneficial ownership report?

Most likely, yes. Almost all U.S. companies, corporations, limited liability companies, trusts, and similar entities are considered reporting companies and must file beneficial ownership information reports to FinCEN to avoid harsh penalties. You will often hear the term “reporting company” when reading about beneficial ownership reports. The definition of reporting company is any company formed or registered in a U.S. state or tribal jurisdiction that does not qualify for an exemption from BOI reporting. If you have ownership interest in a small U.S. company and are reading this article, you most likely own a reporting company.

Although twenty-three types of companies are exempt from filing BOI reports, these will very rarely apply. The most common exemption applies to “large operating companies,” defined as those that meet three special conditions. To qualify as a large operating company, a company must (1) produce more than $5,000,000 in gross receipts or sales, (2) employ more than 20 full-time employees, and (3) have an operating presence at an office location in the U.S. All three conditions must be met to qualify for this exemption.

Twenty-two other exemptions to filing exist, but these are uncommon and apply to company types that are regulated by agencies that are already aware of their beneficial ownership information. The remaining 22 exemptions are for companies in the following highly-regulated industries: U.S. banks, domestic credit unions, bank holding companies and savings and loan holding companies, securities issuers, U.S. governmental authorities, registered money transmitting businesses, licensed and registered broker-dealers, securities exchange or clearing agents, Exchange Act registered companies, registered investment companies and advisers, registered venture capital fund advisers, state-regulated insurance companies, state-licensed insurance producers, Commodity Exchange Act registered companies, public accounting firms, public utility companies, financial market utility companies, pooled investment vehicles, tax-exempt entities, entities assisting tax-exempt entities, wholly-owned subsidiaries of exempt entities, and inactive entities.

What is a beneficial ownership information report?

A beneficial ownership information report includes specific information about both the reporting company and any individuals considered a “beneficial owner” of the business. As a company proprietor, it’s essential to accurately identify every beneficial owner of your reporting company when filing your report, as incorrect information can incur enormous fines and penalties. In some situations, ownership structures can be complex and warrant legal review, making it advisable to find a specialized and affordable law firm in your state to complete your BOI filing and offload this workload and liability.

What is a beneficial owner for BOI reports?

FinCEN defines beneficial owners as any individual who either (1) directly or indirectly owns or controls 25 percent or more of the company’s “ownership interests” or (2) directly or indirectly exercises “substantial control” over the reporting company. It is important to note that beneficial owners are not just those who own the legal entity, but also those who have not equity but help to operate the entity in any substantial way.

An individual can qualify as holding ownership interests of 25% or more of a company’s total ownership interests in various ways. This includes equity, stocks, or similar instruments, as well as capital or profit interests in an entity. Instruments that can be converted into shares, futures on such instruments, and warrants or rights to buy, sell, or subscribe to shares or interests are also considered ownership interests. Furthermore, options or privileges related to buying or selling any of the aforementioned items are included, as well as any other mechanisms used to establish ownership. Remember that beneficial owners must be individuals, so if a husband and wife together have joint ownership of a limited liability company that holds 25% of a reporting company’s ownership interests, then both the husband and wife should be included on the BOI report as beneficial owners – and not the limited liability company.

Individual are also considered to be beneficial owners if they have “substantial control” over a reporting company by possessing significant power to influence the company’s decisions. This can include directing, determining, or substantially influencing important company decisions. Additionally, all senior officers are generally deemed to have substantial control over a company such as a CEO or high-level manager. Other rights or responsibilities may also contribute to substantial control. For the avoidance of doubt, FinCEN has included a catch-all provision that applies to any other form of substantial control applied directly or indirectly. For example, if a family member is not listed on a company but directs the company in certain decisions, this family member should be included in the BOI report for having substantial control over the reporting company.

When are beneficial ownership information reports due?

Due dates for reporting companies to file initial beneficial ownership information reports vary based upon the date your reporting company was established. Owners of existing companies in business prior to January 1, 2024, have one year to file their initial report and must file prior to January 1, 2025. Conversely, owners of reporting companies created after January 1st, 2024, must file within 30 days of the company’s creation. Reporting companies created after this date must also provide information about company applicants.

What is a company applicant?

Company applicants are those who helped form the reporting company, but do not go on to have ownership interests or substantial control, such as a law firm that structures a limited liability company on behalf of the owner. FinCEN reports require listing up to two company applicants on the initial report, however, each company applicant can provider a FinCEN identification number to include on the report instead. This FinCEN ID replaces the personal information that the company applicant would otherwise need to provide.

What is the difference between an initial BOI report and an updated BOI report?

It is important to remember that beneficial ownership reporting is an ongoing requirement because FinCEN needs to maintain current records of entity ownership for law enforcement agencies. For this reason, FinCEN requires reporting companies to file updated reports whenever information about the company or any beneficial owner changes within 30 days of the change. Various changes can trigger a reporting event, such as a CEO changing their primary residence address or the company relocating to a new office. As a rule, if it changes any information on the prior BOI report, then a new report should be submitted to remain compliant and avoid penalties. You can ask a local specialized law firm if you would like to see if your report needs to be updated.

What information must be included on a beneficial ownership information report?

Beneficial Ownership Information (BOI) reports consist of three main sections: the reporting company’s details, information about all individuals considered beneficial owners, and data related to company applicants (when applicable).

The reporting company section of a BOI report must contain the following information:

  1. Legal name and any trade name or “Doing Business As” (DBA) name.
  2. Main operational address.
  3. Jurisdiction of formation or registration, depending on whether it’s a U.S. or foreign company.
  4. Taxpayer Identification Number (TIN).

The beneficial owner section of a BOI report must include the following information about each beneficial owner:

  1. Legal name.
  2. Birthdate.
  3. Home address.
  4. An identifying number from a driver’s license, passport, or other approved document, along with an image of the document the number is from.

Companies created after 2024 will also need to provide the following information for up to two company applicants, defined as third parties who helped form the company but did not go on to become beneficial owners, such as a law firm:

  1. Legal name.
  2. Birthdate.
  3. Residential or office address.
  4. An identifying number from a driver’s license, passport, or other approved document, along with an image of the document the number is from.

Regrettably, complying with FinCEN guidelines involves navigating numerous nuances for each piece of information. For instance, the company address should represent the primary operational location where the business is conducted rather than a registered agent’s address. On the other hand, home addresses should always be used for beneficial owners, but office allowed are allowed for company applicants. Moreover, while company addresses must be based in the U.S., beneficial owner addresses can be located overseas. In some cases, companies may even provide overseas tax numbers. The harsh penalties and tight timelines for filing accurate initial and updated reports make it critical to understand all of the finer points of these new regulations.

Rather than trying to navigate the complexities of FinCEN materials like the 63-page final rule yourself, it is highly recommended to find a specialized attorney in your state to handle your BOI filing. This approach is similar to hiring an accountant for intricate tax filings each year. By entrusting the filing process to an expert, you can save time, avoid potential errors, and concentrate on growing your business. Ultimately, the benefits of seeking professional guidance far outweigh the risks of attempting to manage this complicated process on your own.

Charles Wismer

Charles Wismer

Charles is a fund manager and finance industry specialist with ten years of experience managing complex corporate structures in finance and fintech. His expertise concentrates on deploying and scaling novel solutions for new technologies and regulations.

Charles Wismer

Charles Wismer

Charles is a fund manager and finance industry specialist with ten years of experience managing complex corporate structures in finance and fintech. His expertise concentrates on deploying and scaling novel solutions for new technologies and regulations.

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