In today’s business landscape, transparency is a crucial aspect of maintaining trust and integrity, particularly when it comes to corporate ownership structures. To this end, the U.S. government has introduced the Beneficial Ownership Information Report (BOIR) as a tool to help identify the true owners of companies operating within its borders. BOIR filing obligations are an important regulatory requirement that businesses must understand to stay compliant. In this article, we will explore who needs to file BOIR, the key requirements for filing, and the steps businesses must take to comply with this essential regulation.
What is the BOIR?
The Beneficial Ownership Information Report (BOIR) is a regulatory filing that mandates certain businesses to disclose information about their beneficial owners. Beneficial owners are individuals who ultimately own or control a company, even if their ownership is not reflected in the official records. The BOIR is part of the U.S. government’s efforts to combat money laundering, terrorism financing, and other illicit activities that could be hidden behind complex corporate structures.
The Corporate Transparency Act (CTA), enacted in 2021 as part of the National Defense Authorization Act (NDAA), requires entities to file a BOIR with the Financial Crimes Enforcement Network (FinCEN). This is an important step toward enhancing the financial transparency of U.S. businesses and improving the country’s ability to track illegal activities tied to corporate entities.
Who Needs to File a BOIR?
Not all companies are required to file a BOIR. The obligation to file depends on the nature of the business entity and whether it meets certain criteria established by the CTA. The following businesses are required to file a BOIR:
1. Domestic Corporations, Limited Liability Companies (LLCs), and Similar Entities
If a domestic business is a corporation, LLC, or a similar entity created by filing a document with a state or tribal authority, and it is not exempt, it must file a BOIR. This includes most small businesses, startups, and private companies.
2. Foreign Entities Registered to Do Business in the U.S.
Foreign companies that are registered to do business in the U.S. also must file the BOIR if they have been formed outside the U.S. but are conducting business within the country.
3. Exempt Entities
Certain entities are exempt from the BOIR filing obligations. These exemptions are primarily intended for larger, well-established companies that already have significant regulatory oversight, such as:
- Large Operating Companies: Entities with more than 20 full-time employees, over $5 million in gross receipts or sales, and a physical presence in the U.S.
- Regulated Entities: Companies that are already subject to extensive federal or state regulatory oversight, such as banks, credit unions, insurance companies, and registered investment companies.
- Inactive Entities: Companies that are inactive and not conducting business or planning to do so in the future may also be exempt from filing.
It is important to understand that the criteria for exemptions are complex, and businesses may need to consult with legal counsel to determine their specific filing obligations.
What Information Needs to Be Reported?
For companies that are required to file a BOIR, the report must include certain details about the beneficial owners. This information is designed to provide transparency and ensure that the true individuals behind a company can be identified. The key details include:
1. Personal Information of Beneficial Owners
The BOIR must list the names of individuals who are considered beneficial owners. A beneficial owner is typically someone who owns or controls 25% or more of a company’s equity, or who has significant influence or control over the company in other ways.
For each beneficial owner, the following information must be reported:
- Full legal name
- Date of birth
- Residential or business address
- A unique identifying number (such as a passport number, driver’s license number, or other government-issued identification)
2. Information on Company Applicants
In addition to reporting the beneficial owners, the BOIR also requires the company to disclose information about the individuals who formed the entity or filed the formation documents on behalf of the business. These individuals are typically the company’s organizers or incorporators.
3. Changes to Ownership or Control
Companies are required to update their BOIR filings whenever there is a change in beneficial ownership. If a new owner gains control of the company or an existing owner’s percentage of ownership changes, the company must file an updated report with FinCEN.
How to Start the BOIR Filing Process
Filing the BOIR is relatively straightforward, but it requires businesses to gather and verify specific information about their ownership structure. Here is a step-by-step guide on how to get started:
Step 1: Determine if Your Company Needs to File
The first step is to determine whether your company is required to file a BOIR. Review the criteria mentioned earlier to confirm whether your business is obligated to disclose beneficial ownership information. If your business is exempt, no filing is necessary. If you’re uncertain about your filing obligations, consult with a legal expert.
Step 2: Gather Information on Beneficial Owners
If your company needs to file, you will need to gather detailed information about your beneficial owners. This includes full names, birthdates, addresses, and identifying numbers for individuals who own or control at least 25% of the company or who otherwise have significant control. Ensure that all information is accurate and up-to-date.
Step 3: Create a FinCEN Account
To file the BOIR, you need to create an account with the Financial Crimes Enforcement Network (FinCEN). FinCEN is the U.S. government agency that manages BOIR submissions. You can register for an account on the FinCEN website.
Step 4: Submit the BOIR
Once your account is set up, you can submit your BOIR through FinCEN’s secure portal. Ensure that all the required information is included and verify the details before submitting. The report must be submitted electronically, and there is no filing fee for the submission.
Step 5: Keep Your Information Updated
After filing, it is important to monitor your business’s ownership structure. If there are any changes in beneficial ownership, you must file an updated report within 30 days of the change. Regularly reviewing and updating your BOIR ensures that your business remains compliant with the law.
Penalties for Non-Compliance
Failure to file the BOIR, or providing false or incomplete information, can result in significant penalties. The government can impose civil fines up to $500 per day for continued non-compliance, with a maximum fine of $10,000. In more severe cases, intentional violations may result in criminal penalties, including fines of up to $250,000 and potential imprisonment.
Conclusion
The BOIR filing obligations are an essential part of the U.S. government’s efforts to improve financial transparency and combat illegal financial activities. By understanding who needs to file, what information is required, and how to start the filing process, businesses can ensure they stay compliant with the law. For many companies, this new requirement represents a shift toward greater transparency, but it also offers an opportunity to strengthen business operations and improve accountability. If your company falls under the BOIR filing obligations, make sure to stay proactive in meeting the requirements to avoid penalties and ensure smooth business operations in a rapidly changing regulatory environment.