By Nick Mann 🔹
Illegal business activities like fraud, money laundering, and tax evasion are an ongoing problem in the US. To combat these issues, many companies will be required to report Beneficial Ownership Information (BOI) to the US government moving forward.
In this post, we’ll explain the reason behind this new change, how it impacts small businesses, how to go about reporting, and more.
When and Why BOI Reporting is Being Implemented
In 2021, Congress implemented the Corporate Transparency Act (CTA), which required many US-based companies or those operating within the US to report beneficial owner information to The Financial Crimes Enforcement Network (FinCEN). And in late 2022, FinCEN officially announced a new rule that will require certain businesses to report BOI information.
In their own words, FinCEN explains that “Starting January 1, 2024, many companies will be required to report information to the US government about who ultimately owns and controls them.”
The primary reason for BOI reporting is to protect national security and reduce criminal activity in the areas mentioned earlier. By making this information more transparent, it should become more difficult for unscrupulous individuals to use companies as fronts to cover their illegal activities.
How This Change Impacts Small Businesses
Small businesses that are required to submit a BOI report must do so within the deadline to avoid a violation.
Those that are required to submit a report fall into one of two categories:
They’re a corporation, LLC, or other business entity that’s registered in the United States
They’re a foreign company and registered to do business in any US state
As for the specific timeframe, here’s how it breaks down:
If your company was created or registered before January 1, 2024, you must file your BOI report by January 1, 2025
If your company was created or registered on or after January 1, 2024, you must file your BOI report within 90 calendar days after receiving notice that its creation or registration is effective
In other words, if your business has existed before January 1, 2024, and you’re required to file your BOI report, you have until the end of 2024 to do so. Or, if your business was formed after January 1, 2024, you have 90 calendar days to file once its creation or registration is effective.
Note that to be considered a beneficial owner of your company, you must have at least 25% or more of ownership interest, which can include the following.
Source: FinCEN
Also, note that certain types of businesses like Sole Proprietorships and General Partnerships are exempt from reporting. FinCEN offers a detailed table below that outlines the 23 types of businesses that are exempt.
Source: FinCEN
How Do You Report?
Starting January 1, 2024, the reporting process will be done digitally using FinCEN’s secure filing system, which can be found here. Businesses will not be able to report before that date.
Once the beneficial owner information is uploaded, FinCEN will store it in a secure database, and it will only be shared with authorized users for legal purposes. FinCEN is a department of the US Treasury, so very strict security measures will be used to keep information safe.
You will also receive a confirmation receipt once a completed report is filed.
What Are the Penalties if You Don’t Submit a Report?
In the event that you are required to submit a BOI report and you don’t do so by the deadline, there are three types of penalties you may incur.
You may receive a fine of up to $500 per day beyond the reporting deadline
You may receive an additional fine of up to $10,000 for intentionally providing false or fraudulent BOI information
You may also be imprisoned for up to two years for intentionally providing false or fraudulent BOI information
How BOI Reporting Will Be Beneficial to Small Businesses in the Long Run
We know what you’re thinking. Here’s another business reporting requirement that’s going to cause a headache on top of countless other tasks to keep your company above board.
While it’s true that BOI reporting is bound to create some friction as we transition into 2024 and beyond, it should also have some benefits for small businesses in the long run.
That’s mainly because illegal activity harms innocent people and legitimate businesses, with small businesses being particularly affected. In the case of tax evasion, for example, small businesses often have to pay more to generate the necessary tax revenue.
As The FACT Coalition puts it, “Tax avoidance harms small business competitiveness — increasing the risks to the larger business environment in which we operate in several ways. Small businesses are often the ones asked to pick up the tab to pay for the lost revenue to balance budgets or cover the costs of public services.”
The bottom line is that BOI reporting should significantly reduce illegal financial activities that have been plaguing America for years. And although it creates an extra step for many businesses, the positive long-term impact should be advantageous.
What Are the Next Steps?
The fundamentals of BOI reporting have been covered above, so you should have a basic understanding of what’s happening, if you’re impacted, and, if so, how to respond. If you fall into the category of a business that must file a BOI report, the next step is to visit FinCEN’s website.
Source: FinCEN
There you’ll find a wealth of information on how to prepare and how to file once January 1, 2024 rolls around. It also contains several helpful resources, including:
An introductory video about BOI reporting
A helpful informational video
A brochure that fully unpacks this new requirement
We also suggest signing up for the Cove email newsletter so you can stay up-to-date with the latest news. With BOI reporting having such a big impact on many businesses, this is a topic we’ll provide updates on as they unfold.
And to stay at the forefront of this requirement and other news and educate yourself as a small business owner, be sure to join the Cove community.
