Business board meeting to discuss beneficial ownership information reporting guidelines

Your Guide To Beneficial Ownership Information Reporting

Cassidy Jakovickas

May 15, 2024

Effective January 1, 2024, certain entities must report beneficial owners to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This reporting mandate is part of the 2019 Corporate Transparency Act and is intended to prevent money laundering.

What is beneficial ownership?

A beneficial owner is one who directly or indirectly owns more than 25% of the entity’s ownership interest or exercises substantial control over the reporting company, even if they don’t have an ownership interest.  

Beyond the beneficial ownership percentage

The ownership percentage I just described doesn’t describe the beneficial ownership meaning in its entirety since an owner can be any senior officer of the business or other individual with substantial control of an entity. If you are not sure whether to include an individual in your beneficial ownership information (BOI) reporting, I recommend including an owner rather than excluding them.  

What does it mean to have “substantial control” of a reporting company?

In scenarios where it’s unclear whether an owner is a beneficial owner, FinCEN points to “substantial control” as one defining characteristic of a beneficial owner. For beneficial ownership reporting, an individual with “substantial control” of an entity:

  • Is a company president, chief financial officer, general counsel, chief executive officer, chief operating officer, or holds a similar role as a senior officer.
  • Has authority to appoint or remove officers or a majority of directors (like a board of directors or similar body) of the reporting company.
  • Can make important decisions, which include decisions about the reporting company’s business, finances, and structure.
  • Can exercise any other type of substantial control over the reporting entity.

FinCEN beneficial ownership exemptions and mandated entities

Companies that must comply with these new reporting requirements include:

  • Corporations
  • Limited liability companies (LLCs)
  • Limited partnerships (LPs)
  • Sole proprietorship (in certain states)
  • Other entities that file formation papers with their Secretary of State’s office or similar government agency

Beneficial ownership reporting rules currently do not apply to:

  • 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 entity
  • Entity assisting a tax-exempt entity
  • Large operating company
  • Subsidiary of certain exempt entities
  • Inactive entity

FinCEN beneficial ownership reporting requirements

Once you have determined your entity’s beneficial owners, must provide the following information for each beneficial owner:

  • Owner’s legal name
  • Residential address
  • Date of birth
  • Unique identifier from a non-expired passport, driver’s license, or state identification card

An image of each document with this information must be provided to FinCEN as part of your beneficial ownership information report. Any changes to this information must be updated and filed with FinCEN to comply with BOI reporting requirements.

What is the penalty for not reporting beneficial ownership information?

The penalties for noncompliance with BOI reporting requirements include civil penalties of up to $500 per day that the violation occurs. Violators may also face criminal penalties of up to two years imprisonment and a fine of up to $10,000.

Potential violations of BOI reporting requirements include:

  • Willfully failing to file a beneficial ownership information report
  • Filing false beneficial ownership information
  • Failing to correct or update previously reported beneficial ownership information

What are your next steps in beneficial ownership information reporting?

You must complete your report within 90 days after receiving actual or public notice from the Secretary of State’s office (or similar office) that your business creation or registration is effective.  

Note that, if your business was in existence before January 1, 2024, you have until January 1, 2025, to submit your report.  

You can either submit your report using the PDF template or filing online here.

Contact us for help with tax reporting and tax advisory!  

At MBS Accountancy, we provide accounting, tax, and controller services for $500K – $10M companies and nonprofits so they have crystal-clear financial reporting and confident tax reporting each year. If you’d like to learn more about how our tax services can help you, contact us today. We’ll do our best to get back to you within 2 business days.