Beneficial Ownership Information Return
As part of an ongoing effort to combat financial crime and increase corporate transparency, the Corporate Transparency Act (CTA) mandates that many companies operating in the U.S. must file a Beneficial Ownership Information (BOIR) report with the Financial Crimes Enforcement Network (FinCEN). This regulation, which takes effect on January 1, 2024, requires companies to disclose specific details about their beneficial owners—the individuals who control or have substantial stakes in the business. Here are the top five things every business owner needs to know about the BOIR requirements to ensure compliance and avoid costly penalties.
1. Understanding Beneficial Ownership
The first and most essential step is understanding what qualifies as “beneficial ownership.” Under the CTA, a beneficial owner is an individual who meets at least one of two criteria: (1) directly or indirectly owns or controls 25% or more of the company, or (2) exercises substantial control over the company. This definition covers many people within an organization, including those who may not hold a traditional executive role but still influence operations or financial decisions.
Ownership thresholds mean that multiple individuals may need to be reported, so companies must carefully review ownership structures to identify who qualifies.
2. Who Must File and What Information is Required?
Many businesses operating in the U.S. are required to file a BOIR report, though there are some exceptions. Corporations, limited liability companies (LLCs), and similar entities must file, while certain regulated entities—such as publicly traded companies, banks, and insurance companies—are exempt.
The report must include identifying information about each beneficial owner, such as their full name, date of birth, residential address, and an identifying number from an acceptable document, like a passport or driver's license. Additionally, a copy of the document with the identifying number must be submitted. For newly formed entities, this information must also include company incorporators.
3. When and How to File
The timing of the BOI filing is crucial. Existing entities must file their BOIR report by January 1, 2025, while companies created after January 1, 2024, will have 30 days from the date of formation to submit the report. Additionally, companies must update their BOIR reports within 30 days of any change in beneficial ownership or significant alterations in ownership structure.
Reports can be filed electronically through the FinCEN portal, which is designed to streamline the submission process and ensure secure data handling.
4. Penalties for Non-Compliance
Non-compliance with BOIR requirements can lead to serious consequences. Failure to file an accurate report, or deliberately submitting false information, can result in substantial fines—up to $500 per day for each day the violation continues—and, in some cases, even imprisonment. Given the significant penalties, business owners should take compliance seriously and consult legal or compliance professionals if they have any doubts about their obligations.
5. Privacy and Data Security
One concern business owners have about BOIR is privacy. The information submitted to FinCEN will not be public; it will only be accessible to specific government agencies, such as law enforcement, and certain financial institutions in limited circumstances. FinCEN has emphasized the importance of data security and has taken measures to ensure that BOI data is protected under strict confidentiality protocols.
The BOIR requirements under the CTA aim to bring greater transparency to U.S. businesses, helping to prevent financial crimes like money laundering and tax evasion. By understanding who qualifies as a beneficial owner, ensuring timely filings, and being mindful of potential penalties, business owners can remain compliant and secure the longevity and integrity of their companies.