If you own a small business, it's important to be aware of a federal regulation that could impact how you report key information about your company. Beginning January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) implemented new Beneficial Ownership Information (BOI) reporting requirements. These changes are part of the Corporate Transparency Act (CTA), aimed at combating money laundering, fraud, and terrorist financing by increasing transparency in business ownership.

Here's what small business owners need to know about the BOI reporting requirement and what steps to take to stay compliant.

What is BOI Reporting?

BOI reporting requires businesses to submit details about their "beneficial owners" to FinCEN. A beneficial owner is defined as anyone who:

• Owns or controls at least 25% of the company's equity interests; or
• Exercises significant control over the company.

This new reporting system is designed to help law enforcement track and prevent the misuse of shell companies for illicit activities. All businesses considered "reporting companies" under the law must file their BOI with FinCEN.

Which Businesses are Affected?

Most U.S.-based corporations, limited liability companies (LLCs), and other similar entities are affected by this requirement. There are exceptions for certain types of companies, including:

• Large operating companies (those with 20 or more full-time employees and $5 million or more in gross receipts);
• Certain regulated entities (such as banks and insurance companies); and
• Entities that are already reporting their beneficial ownership under other federal regulations.

For the average small business owner, this means that if your company does not fall into an exemption category, you'll need to comply.

What Information Needs to Be Reported?

For each beneficial owner, the following details must be reported:

• Full legal name
• Date of birth
• Residential or business address
• A unique identifying number, such as a driver's license number, passport number, or other government-issued identification.

Additionally, the business must also provide its own identifying information, including:

• Legal business name
• Principal business address
• The EIN (Employer Identification Number) or other tax identification number.

When and How to File BOI?*

Businesses formed between January 1, 2024 and December 31, 2024 must file their BOI within 90 days of formation. For businesses formed on or after January 1, 2025, the BOI must be filed within 30 days of formation. For businesses that were in existence prior to January 1, 2024, the deadline to submit BOI is January 1, 2025.

In the event of changes to your company's beneficial ownership structure, you must update your BOI filing within 30 days of the change.

FinCEN provides an electronic filing system where businesses can submit their BOI. You can access the system and submit your information by visiting the FinCEN website. It's important to ensure you're aware of the filing requirements and meet the deadlines applicable to your business.

Why Does BOI Reporting Matter for Small Businesses?

While these new requirements may seem like extra paperwork, there are serious consequences for failing to comply. Penalties for non-compliance include:

• Civil penalties of up to $500 per day for failing to file or update BOI information; and
• Criminal penalties (including fines and imprisonment) for knowingly submitting false information.

In addition, having accurate BOI on file can help protect your business from fraud and misrepresentation. It ensures that the business's ownership is clear and transparent, making it more difficult for bad actors to misuse corporate structures for illegal activities.

What Small Business Owners Need to Do:

Here's a step-by-step checklist to ensure you're prepared for FinCEN's BOI reporting:

1. Identify Beneficial Owners: Determine who qualifies as a beneficial owner in your company. Review equity interests and control to see who meets the 25% ownership/control threshold or has significant decision-making power.

2. Gather Required Information: Ensure you have the necessary identifying information for each beneficial owner, including full legal names, addresses, and government-issued ID numbers.

3. Check for Exemptions: Verify whether your business qualifies for any exemptions. If you're unsure, consider consulting with a legal or financial expert.

4. Prepare to File: Be ready to submit your BOI via the FinCEN online filing system. Make sure you meet the initial deadline for either new or existing companies.

5. Stay Updated: Monitor any changes or updates to the FinCEN reporting requirements as they may evolve. FinCEN is expected to release more guidance on the filing process and timelines.

6. Consult with Experts: If you're unsure how to handle BOI reporting or how it applies to your business, reach out to a tax or legal professional to ensure compliance and avoid costly penalties.

The Unconstitutionality Debate

There has been an ongoing debate regarding the constitutionality of the CTA, with arguments suggesting that the act may infringe on privacy rights and exceed the federal government's authority. Some business owners argue that the requirements placed on them are excessive and question whether they are truly necessary for the fight against crime.

However, it's essential to note that despite these legal discussions, the CTA is currently in effect, and compliance is mandatory. Many small businesses may believe they are exempt due to their size or structure, but this is often not the case. Even if a company operates on a smaller scale, if it meets the definition of a "reporting company," it will still need to comply with the CTA requirements. 

Final Thoughts

While the FinCEN BOI reporting requirement may feel like another administrative burden, it's a step toward improving transparency in business practices across the U.S. and protecting the system from exploitation by bad actors. By understanding the rules and preparing now, small business owners can meet the requirements without significant disruption.

If you're a small business owner looking for further guidance on BOI reporting, feel free to contact us. We're here to help you navigate these new regulations and stay compliant with ease.

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If you have questions or need assistance with the reporting process, don't hesitate to reach out!

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*Note: On 11/13/2024 we made a correction to the "When and How to File" section of this post. Previously we stated that all businesses formed after January 1, 2024 only had 30 days to file their BOI. However, businesses formed during 2024 actually have 90 days from inception to complete their BOIs. Businesses formed in 2025 and later only have 30 days.