In recent years, the United States has seen an increased focus on transparency in corporate structures, particularly about identifying the true owners of entities. The Beneficial Ownership Information Report (BOIR) is key to achieving this transparency. Under the Corporate Transparency Act (CTA), businesses are now required to disclose information about their beneficial owners, enhancing the fight against money laundering, tax evasion, and other financial crimes.
But who exactly is required to file BOIR, and what does it entail? In this article, we will break down the requirements for filing the Beneficial Ownership Information Report and help you understand whether your business is affected by this new regulation.
What Is the BOIR?
The Beneficial Ownership Information Report (BOIR) is a requirement under the Corporate Transparency Act (CTA), which was passed in January 2021. The purpose of this report is to provide the U.S. government with up-to-date information about the individuals who truly own or control a business. The goal is to create greater transparency and make it harder for illicit actors to hide behind anonymous corporate structures.
The BOIR requires companies to submit information about their beneficial owners, including their names, addresses, date of birth, and identification numbers (such as a passport or driver’s license). This data will be stored in a secure database maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Only authorized government authorities will have access to this information, ensuring privacy while promoting transparency.
Who Is Required to File the BOIR?
Understanding whether your business needs to file the BOIR depends on the type of entity you operate and who controls or owns it. The CTA has set out specific criteria for businesses to follow when determining whether they are subject to BOIR reporting requirements.
1. Domestic and Foreign Corporations, LLCs, and Similar Entities
The BOIR applies to domestic corporations, limited liability companies (LLCs), and other similar entities formed under U.S. state or tribal law. This means that if your business is registered in the U.S. as a corporation, LLC, or similar structure, you are likely required to file the report.
Foreign entities, such as corporations or LLCs that are registered to do business in the U.S., are also subject to the filing requirements under certain conditions. Specifically, if the entity is registered to do business in the U.S. and operates in one or more states, it must file the BOIR with FinCEN.
2. Exempt Entities
Not all companies are required to file the BOIR. The Corporate Transparency Act outlines certain exempt entities that are not subject to the filing requirements. These include:
- Large Operating Companies: Businesses that meet specific criteria such as having more than 20 full-time employees, generating more than $5 million in annual revenue, and having an operating presence in the U.S. may be exempt from filing.
- Regulated Entities: Certain regulated entities such as banks, credit unions, insurance companies, and other financial institutions that are already required to report beneficial ownership under other laws are exempt from BOIR filing.
- Inactive Entities: Companies that are inactive or dormant, and not conducting any business activities, may also be exempt. However, if the company becomes active again, it will need to comply with the reporting requirements.
3. Who Qualifies as a “Beneficial Owner”?
A beneficial owner is any individual who, directly or indirectly, exercises control over a company or holds an ownership stake in it. According to the CTA, an individual must meet one of the following criteria to be considered a beneficial owner:
- Ownership: An individual who owns or controls at least 25% of the company’s equity interests (whether in the form of shares, membership interests, or other ownership interests).
- Control: An individual who has significant control over the company through voting rights, management decisions, or other means, even if they don’t directly own 25% of the company.
It is important to note that indirect ownership (such as ownership through another entity) counts toward the 25% threshold. This means that individuals who control a business through multiple layers of entities must also be disclosed.
4. Who Is Not Required to File the BOIR?
Certain individuals and entities are explicitly excluded from the filing requirements under the Corporate Transparency Act. These include:
- Publicly Traded Companies: Companies that are listed on a major stock exchange (such as the New York Stock Exchange or NASDAQ) are not required to file the BOIR. This is because publicly traded companies already provide transparency regarding ownership and control through their securities filings.
- Certain Large Entities: As mentioned earlier, large entities that meet the criteria for size and operation may not need to file the BOIR. This includes businesses that have more than 20 employees, more than $5 million in annual revenue, and an active presence in the U.S.
- Regulated Companies: Businesses that are subject to other federal or state regulations that already require the disclosure of beneficial ownership, such as banks or insurance companies, do not need to file the BOIR.
5. When Is the BOIR Due?
The initial Beneficial Ownership Information Report must be filed when a business is formed or registered in the U.S. (for domestic entities) or when a foreign entity registers to do business in the U.S. After the initial filing, companies must update the information in the BOIR if any changes occur, such as:
- A change in beneficial ownership (e.g., an individual sells or transfers ownership).
- A change in control of the business (e.g., a new individual gains control through voting rights or management).
- A change in personal information of a beneficial owner (e.g., a change of address or name).
Companies must submit updates to the BOIR within 30 days of any changes to their beneficial ownership information.
Why Is Filing the BOIR Important?
The requirement to file the BOIR is a key step in promoting transparency within the U.S. business environment. By identifying the individuals who ultimately control and benefit from a company, the government can better combat financial crimes such as money laundering, terrorism financing, and tax evasion.
Additionally, the BOIR filing can increase trust and credibility for businesses, as it demonstrates compliance with federal regulations and a commitment to transparency.
Penalties for Non-Compliance
Failure to file the Beneficial Ownership Information Report or submit updates can result in serious penalties. Companies that knowingly fail to comply with the CTA could face civil penalties of up to $500 per day, along with criminal penalties for willful non-compliance. These penalties highlight the importance of adhering to the filing requirements.
Conclusion
The Beneficial Ownership Information Report is a significant step towards enhancing transparency in the U.S. business landscape. Most businesses, including domestic and foreign corporations and LLCs, must comply with the filing requirements. However, certain entities, such as large operating companies and regulated entities, may be exempt. It is crucial for businesses to understand their obligations under the Corporate Transparency Act and file the necessary information in a timely manner to avoid penalties.
If you’re unsure whether your business needs to file the BOIR, it is advisable to consult with a legal or compliance professional who can guide you through the process and ensure that your business is in full compliance with the law.