As a business owner, you may have heard about the Beneficial Ownership Information (BOI) filing requirement that’s part of the new Corporate Transparency Act (CTA). But what exactly is it, why is it required, and what do you need to know? Here’s a simple breakdown to help you understand everything about BOI filings and why they matter.
What is a BOI Filing?
The BOI filing is a requirement from the Financial Crimes Enforcement Network (FinCEN), introduced under the Corporate Transparency Act (CTA), to increase transparency in business ownership. The goal is to prevent illegal activities like money laundering, tax evasion, and fraud by providing the government with clear records of who actually owns or controls U.S. businesses.
In simple terms, businesses must disclose who their beneficial owners are—those who have significant control or ownership of the company.
Who is Considered a Beneficial Owner?
A beneficial owner is anyone who:
Directly or indirectly owns or controls 25% or more of a business.
Exercises substantial control over the business, such as making key financial or operational decisions.
For businesses in community property states like California, a spouse may also be considered a beneficial owner if they own 50% of the business by default under community property laws.
What Constitutes "Substantial Control"?
An individual exercises substantial control if they:
Hold Senior Positions:
Executive Officers: Such as CEO, CFO, COO, President, Vice President, Managing Member, or General Partner.
Directors: Members of the board who participate in making significant decisions for the company.
Have Decision-Making Authority:
Policy Makers: Individuals who have the authority to set or influence company policies.
Financial Controllers: Those who can make significant financial decisions, like approving budgets or expenditures.
Operational Controllers: Individuals who direct significant aspects of the company's operations.
Control Through Other Means:
Contractual Rights: A person who has rights or agreements that allow them to direct the company's activities.
Influence Over Appointments: Someone who can appoint or remove key personnel.
Veto Power: Individuals who can veto decisions or override management.
Examples of Substantial Control
Example 1: A Chief Executive Officer (CEO) who owns less than 25% of the company's shares but makes all major operational and strategic decisions.
Example 2: A consultant or advisor who doesn't hold an official title but has significant influence over the company's direction due to expertise or contractual agreements.
Example 3: A minority shareholder with special voting rights that allow them to block major decisions or policies.
Why Is This Important for BOI Filing?
The purpose of the BOI filing is to increase transparency and prevent illicit activities like money laundering and fraud. By identifying individuals who exercise substantial control, authorities can better understand who is really in charge of the company.
Key Points to Remember
Not Just About Ownership: Even if someone doesn't own 25% or more of the company, they may still be considered a beneficial owner if they have substantial control.
Multiple Individuals: There may be several people who exercise substantial control, and all should be included in the BOI filing.
Broad Definition: Substantial control covers formal roles (like directors and officers) and informal arrangements (like significant influence through contracts).
What Information Do I Need to Provide?
When filing your BOI, you’ll need to provide the following information for each beneficial owner:
Full legal name
Home address
Social Security Number (SSN) or Taxpayer Identification Number (TIN)
Date of birth
A government-issued ID number (such as a driver’s license or passport) and a copy of the ID.
Why Do I Need to File BOI?
The BOI filing is designed to ensure transparency and reduce the risk of financial crimes. By providing ownership information, businesses help the government prevent illegal activities like money laundering, terrorism financing, and other fraudulent practices.
When is the BOI Filing Deadline?
The filing deadline depends on when your business was formed:
For businesses formed on or after January 1, 2024: You must file your BOI report within 90 days of formation or registration.
For businesses formed before January 1, 2024: The deadline to file your BOI report is January 1, 2025.
It’s essential to file on time to avoid penalties and ensure compliance.
Is My Information Public or Private?
One common concern is whether the personal information you submit will be made public. The answer is no—the information submitted in a BOI filing is not publicly accessible. It will only be available to authorized government agencies like FinCEN and law enforcement to prevent fraud and criminal activity. This is part of the reason why submitting the filing is so important, as it protects businesses and the public from financial crimes while keeping your data private.
Is My Information Safe?
Yes, your information is kept secure and private. The BOI filings will be stored by FinCEN and will only be accessible to authorized personnel in government agencies. The filing process is designed with data security in mind to ensure that sensitive information like Social Security Numbers and identification documents are protected.
What Happens if I Don’t File?
If you choose not to file your BOI or miss the deadline, your business could face significant penalties, including:
Fines: You could be subject to fines of up to $500 per day for not filing.
Criminal penalties: In some cases, failure to comply with the BOI filing requirements could result in criminal charges, leading to more severe consequences for your business and its owners.
What Should You Do Now?
If your business is required to file a BOI, it’s essential to act quickly and ensure the information is accurate and complete. Not sure how to proceed? We can help. As tax professionals, we’re here to guide you through the process and handle the filing on your behalf, ensuring compliance with all the necessary regulations.
Final Thoughts
The BOI filing requirement might seem like one more piece of regulatory paperwork, but it’s aim is to be an important part of protecting your business and the public from financial crimes.
If you have questions about whether your business needs to file BOI or need assistance with the process, feel free to reach out to us today!
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