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New Beneficial Ownership Information Reporting Requirements

Updated: Oct 27, 2023



There is a new reporting requirement coming soon that small business owners need to know about. Next year, tens of millions of small businesses will be filing a beneficial ownership information (BOI) report with a branch of the U.S. Department of Treasury called the Financial Crimes Enforcement Network (better known as FinCEN). A failure to comply can result in a company and the individuals responsible for the non-compliance being subject to hefty civil and criminal fines and even possible jail time.


If you haven’t heard about BOI reporting yet, or heard about it but don’t know the details, please keep reading. We’ll provide you with some of the facts you need to figure out if you need to file a BOI report, and if so, what that means for your small business and the people who own or control it. This information is taken from the federal law that mandates the filing of this report (the Corporate Transparency Act), the official Rule written by FinCEN, and some of the statements made by FinCEN about BOI reporting.


Does my small business have to file this report?


If you formed a corporation (S corp or C corp) or a limited liability company (LLC), a BOI report will have to be filed unless your corporation or LLC qualifies for an exemption (more on exemptions later). Corporations and LLCs are the only business entity types specifically referred to in the Rule. However, entities other than corporations and LLCs may also have to file. The key is whether you had to file a document with the secretary of state or a similar office to create your company. And while not addressed in the Rule, FinCEN has commented that it believes sole proprietorships and most general partnerships would not have to file a report because they do not require the filing of a formation document.


There are 23 exemptions allowed by the Corporate Transparency Act. If your corporation or LLC has more than 20 full-time employees, more than $5 million in gross receipts, and an operating presence at a physical office in the USA, it can qualify for an exemption granted to what is called a “large operating company”. Certain types of inactive entities that were in existence on or before January 1, 2020 are also exempt.


Many of the other exemptions are for entities already regulated by the federal or state government and many already have to disclose their beneficial ownership information to the government. These include, among others, publicly traded companies, financial institutions, insurance companies, public accounting firms, tax exempt organizations, and regulated public utilities. Most small corporations and LLCs will probably not qualify for an exemption but it’s still important to be familiar with all 23 because you’ll want to know for certain whether your company is exempt or not.


When, where, and how do I file this BOI report?


If you currently own a small business that has to file a BOI report (in which case your small business is called a “reporting company”), that report will have to be filed sometime from January 1, 2024 to January 1, 2025. You will have a year to file, once the reporting requirement goes into effect next January 1st. (Reporting companies formed on or after January 1, 2024 have to file within 30 days of receiving actual or public notice of their formation).


Your company’s BOI report will be filed with FinCEN. It will be submitted electronically through a filing system that will be located on FinCEN's website. There is no fee for filing the report. Note that this is a federal filing. There is no state filing involved.


What information will I have to report to FinCEN?


The BOI report for your company will provide FinCEN with certain facts about the company – namely, its legal name and any d/b/a names it conducts business under, its address, jurisdiction of formation, and taxpayer identification number.


And what will probably be more important to you as an owner of a reporting company is that you will also have to provide FinCEN with personally identifiable information (that is, information from which an individual can be identified) for each beneficial owner. A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or who owns or controls at least 25 percent of a reporting company.


For each beneficial owner of your company, you’ll have to provide the individual’s legal name, birthdate, home address, an identifying number from a driver’s license, state ID, or passport, and an image of the document that the number is from. (Reporting companies formed on or after January 1, 2024 will also provide information about their company applicants.)


What happens if the information I reported changes or I realize it was inaccurate when the report was filed?


If any of the information reported about the company or any of its beneficial owners changes, or there is a change in who the beneficial owners are, an updated report has to be filed with FinCEN within 30 days of the change. If there was an inaccurate statement in the BOI report filed for your company, a corrected report has to be filed within 30 days of when you became aware of, or should have become aware of, the inaccuracy.


Can anybody view the beneficial ownership information I report? Will FinCEN keep it safe?


Access to BOI information is limited by the Corporate Transparency Act to certain authorized “requestors”, including federal law enforcement and national security agencies, state and local law enforcement agencies with a court order, the Treasury Department, financial institutions with the reporting company’s consent, and government agencies that oversee financial institutions.


FinCEN is also required to implement protocols to safeguard beneficial ownership information, build a secure system to store the information and establish procedures to ensure that only authorized users can access the information and only for authorized purposes.


How will beneficial ownership reporting impact small business owners?


As you should now realize, the upcoming beneficial ownership information reporting requirement will have a significant impact on many small business owners. As a small business owner you will have to figure out if your company has to file a report, and if so, you will have to report the personal information of the individuals who substantially control and own the company. And that information will be kept in a database maintained by a federal agency. You will also have to keep track of all the information you reported and file updates when it changes.


And there are important decisions to be made, including when you want to file your report and whether you want to file directly or have a third party file for you. But if you start dealing with these issues now, you can be prepared when this significant new reporting obligation goes into effect. And by complying, you can avoid the harsh penalties imposed by the Corporate Transparency Act on violators.


If you have any questions on your reporting requirements or if we can be of assistance in other areas feel free to contact our office to schedule a Consultation .


Cobalt PacWest | CPAs & Advisors

4225 Executive Square # 600

La Jolla, CA 92037

858-247-0939




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