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Understanding Beneficial Ownership Information: Navigating New Reporting Requirements

The clock is ticking for over 32 million businesses as they prepare to meet the Beneficial Ownership Information (BOI) reporting requirements. These regulations, introduced by the Corporate Transparency Act (CTA), are designed to prevent financial crimes like money laundering and terrorism financing by making business ownership more transparent. Ignoring these requirements can result in severe consequences, including hefty fines of over $500 per day—up to a maximum fine of $10,000—and even potential prison time of up to two years.

If you’re a business owner or executive, it’s essential to understand these BOI reporting rules to avoid potential penalties and legal risks. We are providing a comprehensive overview of BOI information, its purpose, who is affected, and how businesses can navigate these new reporting requirements.

What is Beneficial Ownership Information (BOI)?

Beneficial Ownership Information refers to identifying information about individuals who ultimately own or control a company, even if their names do not appear on the official records. This includes anyone with at least 25% ownership interest or substantial control over the company’s management. BOI aims to expose the true ownership and control of a business, reducing the use of anonymous shell companies for illicit activities.

Under the CTA, all significant business entities must submit BOI information to the Financial Crimes Enforcement Network (FinCEN), an agency within the U.S. Department of Treasury. This includes corporations, limited liability companies, partnerships, and other legal entities registered in any state or territory of the United States.

Despite some attempts to challenge these regulations, it is unlikely that the deadlines for compliance will be postponed. Business owners should proceed as though these deadlines are set in stone, ensuring they are fully equipped to meet the reporting requirements on time.

Who Needs to Report BOI?

The regulations apply to both existing businesses and newly formed entities.

  • New Entities (Created/Registered in 2024): Must file within 90 days.
  • New Entities (Created/Registered after December 31, 2024): Must file within 30 days.
  • Existing Entities (Created/Registered before January 1, 2024): Must file by January 1, 2025.
  • Changes or Corrections: Must be reported within 30 days.

Some businesses are exempt, including publicly traded companies, entities already subject to similar reporting requirements, and businesses with more than 20 employees, over $5 million in gross receipts or sales, and a physical presence in the U.S.

Challenges in Compliance

Meeting BOI reporting requirements can be challenging. Accurately identifying beneficial owners can be complex, especially for companies with elaborate ownership structures. Determining who qualifies as a beneficial owner requires a thorough understanding of ownership percentages and control aspects, which may not always be straightforward.

Additionally, keeping this information up-to-date is crucial, as changes in ownership must be reported promptly to avoid non-compliance. This continuous monitoring can be resource-intensive, demanding a robust system to track ownership changes and facilitate timely reporting.

Navigating the Compliance Landscape

SME CPAs can complete and file BOI data based on information that clients provide us. However, we cannot make legal determinations or give legal advice on certain aspects of the law, such as who has “control” over the company. Our team offers comprehensive advisory services, helping you establish effective procedures to monitor beneficial ownership and maintain ongoing compliance with the new regulations.

Our approach is solution-oriented, focusing on creating a streamlined process tailored to your business needs. We provide support in understanding the intricacies of beneficial ownership, ensuring you have the necessary tools and knowledge to manage compliance efficiently.

Establishing a Compliance Framework

To navigate these requirements successfully, consider the following steps:

  1. Identify Beneficial Owners: Develop a clear understanding of who the beneficial owners are within your organization. This involves scrutinizing ownership structures and determining individuals with significant control or benefit.
  2. Implement Monitoring Procedures: Establish procedures to regularly review and update beneficial ownership information. This ensures that any changes are promptly reported, maintaining compliance and avoiding penalties. Some triggers that might necessitate a BOI report include:
    1. Any changes to the company, such as registering a new business name,
    2. Any changes to beneficial ownership, such as introducing a new CEO,
    3. Any change to a beneficial owner’s name, address, or identification number.
  3. Educate Your Team: Ensure your team is well-informed about the new reporting requirements and the importance of compliance. Regular training sessions can help reinforce this knowledge and keep your staff updated on any regulatory changes.
  4. Seek Professional Guidance: Partnering with a trusted advisor like SME CPAs can provide you with the expertise needed to navigate these challenges successfully. Our team is committed to supporting your business, helping you establish a robust compliance framework that protects your interests.

Frequently Asked Questions

What companies will need to report beneficial ownership information?

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. This includes domestic corporations, limited liability companies (LLCs), or any similar entity created by filing a document with a secretary of state. Certain foreign entities registered to do business in the U.S. are also required to report.

How do you identify who a beneficial owner is?

A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. This includes senior officers or those with significant influence over company decisions.

How do I report beneficial ownership information?

You will report information electronically through a secure filing system on FinCEN’s BOI E-Filing website.

When does reporting need to be completed?

New entities created in 2024 must file within 90 days of registration, whereas those registered after December 31, 2024, must file within 30 days. Existing entities as of January 1, 2024, have until January 1, 2025 to file. Any changes in beneficial ownership must be reported within 30 days.

What information is required to be reported?

Companies must report details such as:

  • The company’s full name, any trade name, business address, its jurisdiction of formation, and IRS taxpayer identification number,
  • Name, date of birth, address, and a unique identification number (e.g., Social Security Number or passport number) of each beneficial owner,
  • Description of the nature and extent of the ownership interests held by each beneficial owner.

Act Now to Secure Your Business

Understanding and complying with the new BOI reporting requirements is not only a legal obligation but also a crucial step in safeguarding your business from potential risks. Although the regulations may seem daunting, taking proactive measures and seeking professional guidance can simplify the process significantly.

At SME CPAs, we are committed to helping you navigate these complexities with confidence. Our experienced team is here to support you in establishing effective procedures and ensuring ongoing compliance. Reach out to us today to discuss how we can assist you in meeting your BOI reporting obligations and securing the future of your business.

Get in touch with us today and take the first step towards ensuring your business remains compliant with the latest regulations. Our team is here to support you every step of the way.

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