Understanding Beneficial Ownership Information Reports

When the Corporate Transparency Act (CTA) came into effect on January 1, 2024, business owners were faced with the prospect of creating a Beneficial Ownership Information (BOI) Report. This report has a simple goal – discover who the “beneficial owners” of a company are so that the Financial Crimes Enforcement Network (FinCEN) can root out bad actors.

As a business owner, you are responsible for complying with this new legislation and determining if your business is subject to the Corporate Transparency Act’s reporting requirements. You’ll discover more information about reporting requirements in this article. However, first, we’ll look at why the CTA is being enforced so you understand the purpose behind these reports.

What Is the Corporate Transparency Act?

As the name implies, the Corporate Transparency Act was designed to improve transparency within business entity structures. The idea is that FinCEN will use the powers granted under this act to discover businesses that have been created to help commit tax fraud, money laundering, or similar illegal activities.

How? It all comes down to beneficial owners.

What Is a Beneficial Owner?

A beneficial owner, according to FinCEN, is somebody who owns or controls a minimum of 25% of the ownership interest within a business or exercises “substantial control.” This control can come directly, such as the founder of the company, or indirectly, such as a board member who doesn’t own the company but has a substantial interest in its success.

It’s the “substantial control” aspect that appears to be FinCEN’s target. In the past, somebody who exerted a lot of control over a business could use that influence to guide the company without being considered one of its beneficial owners. This opened the door to money laundering, as a beneficial owner could use their status within another company to filter money into it without having to pay taxes.

Under the CTA, those sorts of structures can no longer exist. Anybody who meets the following criteria must be considered a beneficial owner, meaning they’re added to your Beneficial Ownership Report:

People who own, directly or indirectly, at least 25% of the company.
Any senior officer, who is somebody who has substantial control even if they own less than 25% of the business.
- For instance, a chief financial officer is a senior officer.
Anyone who has the authority to appoint or remove senior officers or board members.
A person who has a substantial influence over the company’s direction in other ways.
- Examples include controlling whether the business enters into contracts, or they have a say in the nature of what the business does.

Who Needs to Complete a Beneficial Ownership Report?

FinCEN says that two types of businesses need to file Beneficial Ownership Reports:

Domestic Reporting Companies – This category covers most types of businesses that have filed formation documents with a secretary of state or similar local government body. Examples include limited liability companies (LLCS) and corporations.
Foreign Reporting Companies – A foreign company is any business that was formed overseas but is licensed to transact in the United States. Typically, this licensing also comes as a result of filing with the secretary of state or a similar office.

In short, if you have a small business in the United States, the odds are that FinCEN now considers you a reporting company, meaning you have to file a Beneficial Ownership Information Report.

When Should You File?

Any business that was created before January 1, 2024 has until January 1, 2025 to file its first BOI report.

If you created your company in 2024, you have 90 days to file from the date on which your state confirmed the official registration of your company. Those who create a business in 2025 or after only have 30 days to file the BOI report from the date that they’re officially created.

When you file, you’re required to provide fairly simple information about each of your beneficial owners, including:

The owner’s full legal name and their date of birth.
Their place of residence.
An identifying number from an appropriate legal document, such as a passport or driver’s license.
A picture of the document from which the above number is derived.

Who Is Exempt from Beneficial Ownership Information Report Filing?

As is often the case, there are exemptions to BOI reporting – 23 of them to be exact. The most significant of these exemptions relates to the size and profitability of a business.

The Main Exemption

Any business that is considered a “Large Operating Company” by FinCEN is exempt from filing a BOI report. To be this type of company, you must meet all of the following conditions:

You have over 20 full-time employees working for your company in the United States.
Your company’s federal income tax return demonstrates that the business generated over $5 million in sales or gross receipts for the previous tax year.
The company has a physical office in the United States.

Unfortunately, this means that most small businesses will have to submit a BOI report. According to the U.S. Small Business Administration (SBA), 99.9% of American companies are classified as “small.” And though some of those businesses may meet the above criteria, the majority of them – around 33.1 million – will have to file a BOI report.

Other Exemptions

There are a host of other types of businesses that aren’t considered “reporting entities,” meaning they’re exempt from BOI reporting:

Governmental authorities
Banks
Securities reporting issuers
Securities brokers and dealers
Most entities that deal with registration under the Exchange Act
Insurance companies and state-licensed insurance providers
Accounting firms
Public utilities firms

There are others, with FinCEN providing a list of 23 entities on its website. If your company falls under any of these descriptions, you don’t have to file a BOI report.

Do I Need to File a Beneficial Ownership Information Report

So, let’s return to the question that kicked off this article – do you have to file a BOI report? If you’re a business owner in the United States, or a foreign business owner who transacts in the U.S., the odds are high that you’ll need to submit this report unless you qualify for one of the 23 exemptions provided by FinCEN.