Understanding the Beneficial Ownership Information Requirement

In an effort to combat financial crimes such as money laundering, tax evasion, and corruption, the United States has implemented significant regulations surrounding beneficial ownership information (BOI). The Corporate Transparency Act (CTA), enacted in January 2021, mandates specific requirements for reporting beneficial ownership.

Beneficial ownership refers to the individuals who ultimately own or control a company, even if they are not the legal owners on paper. This information is crucial for transparency, as it allows authorities to track down the individuals who benefit from and control corporate entities, which is essential for preventing illicit activities.

The CTA requires certain entities to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Most corporations, limited liability companies (LLCs), and other similar entities created in or registered to do business in the U.S. are required to report their beneficial ownership. Sole proprietors are not required to report their beneficial ownership unless they have registered as a business with their Secretary of State.  Also, large entities are exempt from reporting if they have more than 20 employees, more than $5 million in gross receipts, and a physical presence in the U.S. 

A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the entity or an individual who owns or controls at least 25% of the ownership interests in the entity. These individuals are required to report the full legal name of the beneficial owner, date of birth, their residential or business address, and a unique identifying number from an acceptable identification document (like a driver’s license or passport).

The CTA specifies critical deadlines for compliance:

• Existing Entities: For entities created before January 1, 2024, the deadline to file their beneficial ownership information is January 1, 2025.

• Initial Reporting: Entities created or registered after January 1, 2024, must file their beneficial ownership information upon formation or registration.

• Updates: Companies must update their BOI if there are changes to their ownership or other relevant information within 30 days of the change.

Filing a beneficial ownership report begins by registering with FinCEN by creating an account on the FinCEN reporting system.  This can be found online at www.fincen.gov/boi. The report requires detailed information about the beneficial owners, including names, addresses, dates of birth, and identification numbers.  Once completed, the report can be submitted electronically through the FinCEN portal.

Enforcement and Compliance

The CTA is enforced by FinCEN, which has the authority to impose penalties for non-compliance. Although FinCen has said that it plans to only impose fines on businesses who willfully fail to meet these reporting requirements, the penalty is $591 per day that the reports are not filed, up to a maximum of $10,000. 

If you are a beneficial owner of a small business, including a rental real estate property, the deadline is drawing near to complete this requirement.  Some professionals, including attorneys, offer completing this form as a service.  You are welcome to engage them for this service.  In my experience, completing this form was fairly straightforward.  In any case, if you haven’t acted or were made aware of this new rule, now is the time to meet this requirement for any and all of your LLCs or other business entities.