The Financial Crimes Enforcement Network (FinCEN) wants to know who’s pulling the strings at companies operating in the U.S. As a result, they’ve instituted a new filing requirement. Starting January 2024 (read: this already applies), the vast majority of companies operating across the country need to submit an annual report called Beneficial Ownership Information (BOI).
Essentially, this tells FinCEN cui bono: who benefits at the company. Specifically, the report tells the network about any beneficial owners, meaning anyone who directly or indirectly has substantial control in the company or owns/controls at least 25% of the company’s ownership interest.
You have until January 1, 2025, to file this report. Still, though, since it’s new and can get a little complex, it’s worth looking into now.
Who needs to file a BOI report
FinCEN calls companies that need to file a BOI “reporting companies.” These companies fall into one of two buckets:
- Domestic reporting companies: These are corporations, limited liability companies, and any other type of entity formed by filing paperwork with the appropriate state authority.
- Foreign reporting companies: These are companies that registered to do business in the United States by filing documentation with the appropriate authority, like the secretary of state.
In other words, the vast majority of businesses will be subject to BOI reporting requirements this year. That said, there are a few exceptions to the new rule. The following types of companies could be exempt from this reporting requirement:
- Accounting firms
- Banks
- Commodity Exchange Act-registered entities
- Credit unions
- Depository institution-holding companies
- Exchange Act-registered entities
- Financial market utilities
- Governmental authorities
- Inactive entities
- Insurance companies
- Investment companies and advisors
- Money services businesses
- Large operating companies
- Pooled investment vehicles
- Public utilities
- Securities brokers and dealers
- Securities exchanges and clearing agencies
- Securities reporting issuers
- State-licensed insurance producers
- Subsidiaries of certain exempt entities
- Tax-exempt entities and entities assisting them
- Venture capital fund advisors
That said, in order to qualify for the exemption, the company needs to meet specific criteria. This Small Entity Compliance Guide from FinCen provides a checklist for each exemption category. If you think you might qualify, scroll to your potential exemption category and see if you can tick the required boxes.
Who counts as a beneficial owner
You need to add an individual to your BOI report if they fall into one of two categories: they have substantial control in the company or they own at least 25% of it. If they fall into both buckets, they should definitely show up in your BOI.
So, how does FinCEN define substantial control? They break this out into the following categories:
- Senior officers (e.g. Presidents, C-suite executives)
- Appointment or removal authorities (e.g., members of your board)
- Important decision-makers
FinCEN also has a “catch-all” category acknowledging that some companies have more flexible corporate structures and may not necessarily title their staff the same way. Essentially, though, if an individual has significant sway in your company and their decision matters in terms of where you’re headed, they should probably be on your BOI.
Ownership interest is a bit clearer cut. FinCEN says someone is a beneficial owner if they have at least 25% of your company’s:
- Equity
- Stock
- Voting rights
- Capital or profit interest
- Any instrument convertible into any of the above
- Any option or privilege to buy or sell any of the above
- Any other instrument (including a simple understanding between relevant parties) that establishes ownership interest
If you’re still not sure who qualifies at your company and you want to do a deeper dive here, you can use the “Who is a beneficial owner” section of the Small Entity Compliance Guide.
When to file and how to do it
You’ll head to FinCEN’s BOI e-filing website to tackle this to-do. Again, you have until January 1, 2025, to get this done.
To file your report, you’ll need basic details about your business, like its:
- Legal name
- Tax ID number
- Address
If you don’t already have a FinCEN ID, you can apply for it as part of the filing process.
To file, you need to input information on any beneficial owners. For each beneficial owner, be ready to provide a little information about them personally, like their birthday and a form of ID (e.g., their driver’s license or passport, which you’ll need to upload a picture of).
Fortunately, there’s no fee for submitting this report to FinCEN. And assuming you have all of the information that you need handy, filing should only take you about 10 minutes.
Alternatively, if you want to save yourself the hassle and you’re already working with CorpNet for your business compliance needs, you can have CorpNet file the BOI for you.
Penalties if you don’t file
Because this requirement is new, FinCEN may extend a grace period of up to 90 days to allow companies to fix a failure to file. That said, the penalties are pretty hefty, so you want to avoid this issue altogether.
If you’re found to wilfully violate this new reporting requirement, you can get stuck with a civil penalty of up to $500 per day for each day that your violation continues. Beyond that, you could get hit with criminal penalties like a fine of up to $10,000 or up to two years in prison. Not ideal, clearly, so it’s well worth getting on top of this new requirement.
These penalties apply if you wilfully don’t file or if you falsify information on your BOI report. Fortunately, you have the whole rest of the year to knock this out and avoid these major penalties.
Clearly, FinCEN takes violations seriously. If you want to stay informed about future FinCEN requirements — including any changes to BOI regulation — you can sign up for FinCEN update emails or text alerts here.
Getting help with your BOI report
As we mentioned before, CorpNet is offering BOI filing services to businesses. If you’re daunted by this task or you want to talk with experts to ensure you properly report your beneficial owners, their experienced team can help you out.
We’re also here to offer assistance. New filing requirements are a huge part of our world as tech accounting and filing specialists. For guidance around this 2024 to-do, contact us.