What is beneficial ownership information reporting?
For every business entity registered with the Secretary of State, it is mandatory to submit a singular Beneficial Ownership Information Report. This report furnishes essential details about the individuals who own or manage the business, facilitating compliance with the legal obligations stipulated by the Corporate Transparency Act through the Financial Crimes Enforcement Network (FinCEN).
How do I get a Beneficial Ownership Information Report?
With ComplyBOI.com, you’ll be notified when it’s time to file your report. We’ll create an accurate report that includes the identifying information about the individuals who own or control your business. Then, we’ll file your report on your behalf with the Financial Crimes Enforcement Network (FinCEN) and confirm successful submission.
How do I determine if I'm a beneficial owner?
A beneficial owner is an individual who directly or indirectly:
- owns or controls at least 25% of your company’s ownership interests OR
- exercises substantial control over your business.
What is an example of a beneficial owner with substantial control?
Examples of beneficial ownership and beneficial owners with substantial control include:
- An important decision-maker for the reporting company
- A senior officer (president, chief executive officer, chief financial officer, general counsel, chief operating officer, or any other officer with a similar function)
- An individual with the authority to appoint or remove officers or directors (or similar body) of the company
What is the Beneficial Ownership Information Reporting Rule?
The Beneficial Ownership Information Reporting Rule, as per the Corporate Transparency Act, requires the identification of individuals benefiting from a legal entity. This rule aims to enhance transparency and assists the federal government in combatting financial crimes and fraud, including but not limited to money laundering, corruption, human trafficking, drug trafficking, tax fraud, and various forms of fraud against employees, customers, and other businesses.
What information is required for a beneficial ownership information report?
A beneficial owner is required to provide the following:
- Legal name
- Date of birth
- Address
- Percentage of ownership
- An image of an acceptable identification document (such as a passport or driver's license)
What companies are exempt from beneficial ownership information reporting?
The Financial Crimes Enforcement Network lists 23 types of exempt business entities that do not qualify as reporting companies under the reporting requirement:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entities
- Entity assisting a tax-exempt entity
- Large operating company
- Subsidiary of certain exempt entities
- Inactive entity
What companies are tax-exempt and may be exempt from beneficial ownership information reporting?
Companies qualify as tax-exempt entities if they meet any of the following criteria:
- The IRS considers them exempt entities under section 501(c) of the Internal Revenue Code (this will include many entities with nonprofit organization status).
- It lost tax-exempt status under the code less than 180 days prior.
- It is a political organization as defined under section 527(a) of the code.
- It is a trust as defined under section 4947(a) of the code.
What companies qualify as a large operating company and may be exempt from beneficial ownership information reporting?
A large operating company, is one that fulfills the following criteria:
- It falls under a federal regulatory regime.
- It employs over 20 individuals with full-time employment status in the U.S.
- It reports more than $5 million in gross receipts or sales on the previous year's tax return filed with the IRS (excluding foreign receipts).
- It maintains a physical operating presence in the U.S.
- It is owned by an entity already exempt under the Corporate Transparency Act.
- It is designated as exempt by the Secretary of the Treasury and the U.S. Attorney General.
What types of companies qualify as inactive entities and may be exempt from beneficial ownership information reporting?
A reporting company must be an active business, and inactive entities are not required to report. The Financial Crimes Enforcement Network defines an inactive entity as meeting ALL of the following criteria:
- It was created before Jan. 1, 2020.
- It is not engaged in active business.
- It is not owned by a foreign person, resident, domestic partnership, corporation, or other estate or trust.
- It has not sent or received over $1,000 while transacting business in the last year.
- It has no assets, including ownership of other companies, in the U.S. or elsewhere.
What types of individuals are exempt from being listed as a beneficial owner according to the Corporate Transparency Act?
The Corporate Transparency Act exempts certain people from the beneficial owner definition, including:
- Minors
- Individuals acting as nominees, intermediaries, custodians, or agents on behalf of someone else
- Employees who are not senior officers and whose only interest or control is derived solely from their employment status
- Individuals whose only interest in a reporting company is derived solely from the right of inheritance
- Contingent trust beneficiaries
- Creditors whose only interest is to recover business debts
Who must file a Beneficial Ownership Information Report?
Corporations and limited liability companies (LLC) will be required to report identifying information about the individuals who own or control a business with the Financial Crimes Enforcement Network to satisfy requirements under the Corporate Transparency Act. This new requirement applies to most business entities unless an exception applies.
What is the Corporate Transparency Act?
The Corporate Transparency Act is a legislative measure altering the reporting criteria for beneficial ownership information of business owners in the United States. It mandates businesses to identify and document any individual holding a 25% or higher ownership interest or exerting substantial control over the company.
According to the Corporate Transparency Act, the majority of reporting companies are required to submit information about each beneficial owner to the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN).
What are the changes for LLCs in 2024?
Individuals who are members or owners of a limited liability company (LLC) are likely classified as beneficial owners according to the rule's definition. It is necessary for them to submit the new report to the federal agency, providing essential contact information about the company and its owners.
This obligation encompasses both single-member and multi-member LLCs, as all members could be deemed beneficial owners. Hence, they must be identified in the beneficial ownership report, including their pertinent identifying information.
What if there are changes to my business after filing a Beneficial Ownership Report?
Any changes to the owners or controlling members of a business, along with changes to their identifying information, require an update in the beneficial ownership information report. For instance, an updated Beneficial Ownership Information Report is required when a controlling member transitions from being a minor to reaching the age of majority or if a company attains tax-exempt status. Furthermore, an updated Beneficial Ownership Information Report is obligatory in cases where initially reported information is found to be incorrect or if entities modify their formation documents. Businesses are granted a 30-day window from the date of the change or amendment to submit an updated Beneficial Ownership Information Report.
Why should a business use a service to submit the Beneficial Ownership Report?
The Corporate Transparency Act is one of the most important legislations affecting small business owners. Its latest requirement—the Beneficial Ownership Information Reporting Rule — is effective on January 1, 2024. This rule mandates that the majority of limited liability companies and corporations must file a beneficial ownership information report.
For small business owners focused on the day-to-day operations and growth of their businesses, navigating this new law can be confusing and distracting. Services like those offered by ComplyBOI.com simplify the process, allowing customers to proactively meet the requirements and comply with the law to avoid potential criminal and civil penalties. These penalties may include imprisonment for up to two years, a fine of up to $10,000, and/or a daily fine of $500.
With ComplyBOI.com, customers can ensure compliance through three easy steps, minimizing risk while saving time and money.
