The Beneficial Ownership Rule: Reporting Requirements

Starting January 1, 2024, the Corporate Transparency Act (CTA) will require all businesses, big or small, to follow the beneficial ownership rule. Small business owners like you must report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) or face heavy civil and criminal penalties. 

Here’s what BOI reporting means in practice.

Beneficial Ownership Rule Key Takeaways

• The beneficial ownership rule applies broadly to various business structures. Small business owners must assess their status under this rule to ensure compliance.

• The date of your business’s creation or registration determines the due date of your initial BOI report. Companies created before January 1, 2024, have until January 1, 2025, while newer businesses have different deadlines.

• Non-compliance with the beneficial ownership rule incurs substantial penalties, including fines of up to $250,000 and imprisonment for up to five years, depending on the infraction. 

• Knowing who qualifies as a beneficial owner, having the necessary documentation, and keeping information updated is critical to avoid penalties and maintain compliance.

What Is the Beneficial Ownership Rule?

The new beneficial ownership rule comes into effect on January 1, 2024. Suppose you own or operate a small business in the United States. In that case, you’ll likely need to report information about your legal entity’s beneficial owners to FinCEN, a U.S. Department of the Treasury bureau. 

This rule aims to enhance the transparency and accountability of business entities, prevent the misuse of the U.S. financial system, and curb incidents of money laundering, tax evasion, fraud, and terrorism financing. 

The beneficial ownership rule is part of the CTA, which aims to install anti-money laundering safeguards, close loopholes that allow anonymous shell companies to operate in the U.S., and provide law enforcement and national security agencies access to reliable and accurate information about an entity’s owners. It also imposes civil and criminal penalties for non-compliance with the beneficial ownership reporting requirements.

The BOI reporting rule affects millions of small businesses nationwide, especially those structured as limited liability companies (LLCs) or similar entities. As a small business owner, you must know the new rule and its implications.

Reporting Companies

The beneficial ownership rule applies to any reporting company created or registered in the U.S. or operating in the U.S. by filing with a secretary of state or similar office. 

FinCEN defines a reporting company as an LLC, corporation, or similar entity created by filing with a state or Tribal government or formed in a foreign country and registered to do business in the U.S.

Exemptions

BOI reporting requirements don’t apply to all business entities. There are a total of 23 categories of entities exempt from reporting requirements. These are companies in industries already heavily regulated at the state or federal level. The list includes:

• Securities reporting issuers

• Banks

• Credit unions

• Broker-dealers

• Investment companies or investment advisers

• Insurance companies

• Accounting firms

• Public utilities

• Pooled investment vehicles

FinCEN provides a complete list of exempt entities.[1]

Exclusions

In addition to exemptions, there are also certain types of entities that are not considered reporting companies. These include:

• Sole proprietorships, which aren’t separate legal entities from their owners

• Unincorporated associations, such as partnerships, joint ventures, and cooperatives, that aren’t created by filing a document with a state or Tribal government

• Trusts, other than statutory trusts created by filing with a state or Tribal government

• Natural persons acting as agents for another natural person[2]

Businesses under these exclusions don’t need to file a BOI report with FinCEN. However, you may still need to provide beneficial ownership information to a financial institution or other third parties that request it for compliance purposes.

Penalties for Non-Compliance

There are severe civil and criminal penalties for failing to comply with beneficial ownership reporting requirements. Reporting companies or beneficial owners who knowingly provide false or fraudulent information or knowingly fail to file an initial or updated BOI report may face fines of up to $10,000 and up to two years in prison.

Additionally, anyone disclosing or using beneficial ownership information unauthorized may be subject to a fine of up to $250,000 and imprisonment of up to five years.

Beneficial Ownership Reporting Requirements

The beneficial ownership rule is primarily an attempt by the government to collect and maintain up-to-date information on individuals who own and control reporting companies in the U.S. It’s essential information for combating financial crimes such as money laundering and tax evasion.

Suppose you want to comply with this rule and avoid getting into hot water with the federal government. In that case, you need to understand what exactly is required of you. 

FinCEN’s beneficial ownership requirements aren’t complex but could confuse first-time filers. That’s why we’ve taken it upon ourselves to drill down and explain the most pertinent terms you need to know.

What Is a Beneficial Owner?

FinCEN defines a beneficial owner as someone who directly or indirectly owns or controls a reporting company. Specifically, it’s a natural person who directly or indirectly owns at least 25% of a company’s equity interests (such as shares) or who exercises substantial control over management or operations.[2]

A beneficial owner exercises substantial control over a reporting company by having the power to direct or influence its actions. This can mean everything from being a director, officer, manager, partner, or trustee to being able to appoint or displace the same positions.

There are exceptions to this definition. Specific individuals are excluded from being considered beneficial owners, even if they meet ownership or control criteria. Exceptions include: 

• A minor child

• A nominee, intermediary, agent, or custodian acting on behalf of someone else

• An employee of the reporting company whose control or benefits come only from their employment

• An individual whose only interest in the company is through inheritance

• A creditor of the reporting company, unless they meet ownership or control criteria[2]

What to Include in a BOI Report

The beneficial ownership rule requires you to file a BOI report. You submit this form to FinCEN to provide identifying information on your reporting company, its beneficial owners, and company applicants. 

Reporting Company Information

The first type of information you must include in your BOI report concerns your reporting company. You’ll need to provide the following: 

• Legal name of the reporting company, including a trade name, “doing business as” (DBA) name, or other alternative name

• Current mailing address, such as a street address, post office box, or private mailbox

• The state, tribal, or foreign jurisdiction of formation

  • Non-U.S. reporting companies must provide the state or tribal jurisdiction of first registration

• Internal Revenue Service (IRS) Taxpayer Identification Number (TIN), including an Employer Identification Number (EIN)

  • Foreign reporting companies without a TIN must report a tax ID number issued by a foreign jurisdiction and the name of such jurisdiction[1]

Documentation for Beneficial Owners and Company Applicants

The second and third categories of information required for a BOI report are beneficial owner and company applicant information. In this case, a company applicant is any person who files creation or registration documents for a domestic or foreign reporting company.[3] 

You must provide the following information for beneficial owners and company applicants:

• Full legal name

• Date of birth

• Complete current address

  • Company applicants who form or register a reporting company must provide their business street address

• Identification number, issuing jurisdiction, and an image of one of the following:

  • U.S. passport

  • State driver’s license

  • State, local, or tribal ID

  • Foreign passport, if no other documents are available

Individuals may include a FinCEN identifier in place of the above information if available.

FinCEN Identifiers

A FinCEN identifier is a unique number issued to individuals or reporting companies by FinCEN upon request.[4] It can be used as an alternative to providing four pieces of information (name, address, date of birth, and identification document number). 

FinCEN identifiers come in two types: individual identifiers and entity identifiers. The former is given to beneficial owners of one or more reporting companies, and the latter to reporting companies that are themselves beneficial owners of another reporting company. 

Applicants can get a FinCEN identifier by visiting FinCEN’s website, accessing the secure online portal for BOI reporting, and selecting the option to request a FinCEN identifier. They’ll need to provide information about themselves or the reporting company, along with supporting documents if necessary.

FinCEN identifiers aren’t mandatory, but they provide several benefits that might make them attractive to business owners. Benefits include: 

• Simplifying the reporting process

• Protecting privacy and security

• Enhancing the accuracy and consistency of the BOI database

• Facilitating the verification and validation of information by FinCEN

When to File Your BOI Report

Wondering when to file your BOI report with FinCEN? The answer depends on when your small business was created or registered:

• Companies created or registered before January 1, 2024, have until January 1, 2025, to file an initial BOI report.[5]

• Companies created or registered on or after January 1, 2024, but before January 1, 2025, have 90 calendar days from receiving actual or public notice of their creation or registration.[5]

• Companies created or registered on or after January 1, 2025, have 30 calendar days from the date they receive actual or public notice of their creation or registration.[5]

Updated BOI Report

FinCEN requires business owners to file an updated BOI report within 30 days of any change in beneficial ownership information. Some examples of changes that would require an updated report based on the beneficial ownership regulatory requirements are:

• A change in the name, address, date of birth, or identification document number of a beneficial owner

• A change in the percentage of ownership or control of a beneficial owner

• A change in the status of a beneficial owner, such as becoming or ceasing to be a beneficial owner

• A change in the name, address, or identification document number of the reporting company

• A change in the status of the reporting company, such as merging, dissolving, or conversion

Filing a BOI Report

Filing a BOI report doesn’t have to be a complicated process. Once the effective date of January 1, 2024, arrives, FinCEN will provide a secure online portal for BOI reporting. From there, you’d need to take the following steps:

1. Create an account and log in to the portal with your email address and password.

2. Fill out the online form with the required information and upload supporting documents.

3. Review and submit your BOI report, receiving a confirmation email from FinCEN. 

4. Keep a copy of your BOI report and confirmation email for your records.

There’s no fee for filing your BOI report with FinCEN. You may incur outside costs when obtaining and verifying information from your beneficial owners, such as fees for identification documents, background checks, or professional services.

Prepare Your BOI Report Today

Providing accurate and complete information is essential to complying with the beneficial ownership rule. As a small business owner, you can’t afford to find yourself on the wrong side of FinCEN, facing severe civil and criminal penalties for non-compliance. 

We know how difficult it can be to juggle the full-time responsibilities of business ownership with the demands of accurate compliance. That’s why we’ve created a simple process through which we help you file a BOI report and remain in good standing without lifting a finger. Find out more here.

Beneficial Ownership FAQs

What are the regulations on beneficial ownership?

Beneficial ownership regulations are rules and requirements put in place by the U.S. to identify and verify natural persons who own or control a legal entity or arrangement, such as a company, trust, or foundation.

What is the beneficial ownership rule for 2024?

The beneficial ownership rule refers to the final rule issued by FinCEN that implements the CTA’s provisions on beneficial ownership information reporting. It requires companies to report information to FinCEN about their beneficial owners and company applicants effective January 1, 2024.

What is the impact of the beneficial ownership rule?

The beneficial ownership rule enhances FinCEN’s ability to protect U.S. national security and its financial system from illicit use by gathering essential information on beneficial owners and reporting companies. As a small business owner, the beneficial ownership rule’s impact means you must provide accurate information or face severe civil and criminal penalties.

What is a beneficial owner?

A beneficial owner is any person or group who, directly or indirectly, has the power to vote or influence transaction decisions regarding a specific security, such as shares in a company. 

How do you determine beneficial ownership?

A person is considered a beneficial owner of a reporting company if they meet one of two requirements: 

• They directly or indirectly own or control at least 25% of the reporting company's ownership interests.

• They exercise substantial control over the management or operations of a reporting company.

What is the difference between a beneficial and legal owner?

Although beneficial and legal owners are often one and the same, a legal owner holds the legal title to a reporting company under their name. In contrast, a beneficial owner is entitled to the benefits (i.e. equity, income, or occupancy) without holding the legal title. Sometimes, the beneficial owner may wish to remain anonymous and have a trust or nominee hold the legal title.

Who is exempt from the beneficial ownership rule?

23 entity types are exempt from the beneficial ownership rule, including publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies. Typically, these companies already experience intense federal scrutiny. FinCEN provides a complete list of exempt entities.[1]

Bibliography

1. FinCEN. “Small Business Compliance Guide.” Accessed December 11, 2023. 

2. FinCEN. “Beneficial Ownership Information Reporting Rule Fact Sheet.” Accessed December 11, 2023.

3. The National Law Review. “The Corporate Transparency Act – Disclosure Requirements and Guidance for Reporting Companies Based on FinCEN’s Final Rules.” Accessed December 11, 2023. 

4. Corporate Transparency Act ORG. “What is a FinCEN Identifier?” Accessed December 11, 2023. 

5. FinCEN. “Beneficial Ownership Information Reporting.” Accessed December 11, 2023.