The Corporate Transparency Act (CTA), passed by the U.S. Congress in 2020, introduced new regulations for reporting beneficial ownership information to increase transparency and combat financial crimes like money laundering and fraud. One of the core elements of this legislation is the requirement to file BOIR (Beneficial Ownership Information Reporting) with the Financial Crimes Enforcement Network (FinCEN). This article covers everything you need to know about BOIR filing requirements, from who needs to file to the consequences of non-compliance, so that you can ensure your business stays compliant and avoids penalties.
What Is BOIR Filing?
BOIR is a critical part of the CTA aimed at increasing the accountability and transparency of businesses in the U.S. The filing is a mandatory disclosure of beneficial ownership information to FinCEN, a bureau of the U.S. Department of the Treasury. The information submitted helps law enforcement and regulatory agencies identify and track individuals who own or control companies, making it more difficult for illicit actors to conceal their identities behind anonymous entities.
The information collected by FinCEN will be maintained in a secure database and used exclusively by authorized agencies and institutions. However, failure to comply with BOIR filing requirements can lead to significant financial penalties and even criminal charges.
Who Is Required to File BOIR?
Most businesses in the U.S. are required to file BOIR, but there are some exceptions. Entities required to file include:
- Corporations, Limited Liability Companies (LLCs), and Other Similar Entities: This includes any business created by filing paperwork with a U.S. state or tribal government, such as corporations, LLCs, and partnerships.
- Newly Formed Entities: Any newly formed entity that fits within the legal structure of a corporation or LLC must file beneficial ownership information with FinCEN.
Certain larger companies and organizations are exempt from BOIR filing. For example, publicly traded companies, regulated financial institutions, tax-exempt nonprofits, and businesses with more than 20 full-time employees, more than $5 million in gross receipts, and a physical office in the U.S. are typically exempt from BOIR requirements.
What Information Needs to Be Submitted?
When filing BOIR, businesses must submit detailed information about their beneficial owners. Beneficial owners are individuals who own or control at least 25% of the company or who exercise significant influence or decision-making authority over the business. For each beneficial owner, the following details must be provided:
- Full Legal Name: The full name of the beneficial owner as it appears on government-issued identification.
- Date of Birth: The individual’s exact date of birth.
- Residential Address: The current residential address of the beneficial owner.
- Identification Number: A government-issued ID number, such as a passport number, driver’s license number, or another unique identifier.
- Ownership Interest or Control Information: An explanation of the beneficial owner’s interest in the business or their role within the organization (e.g., percentage of ownership or control authority).
Additionally, businesses must file information about any company applicant, such as the individual responsible for filing the company’s formation documents with the state.
When Are the Deadlines for BOIR Filing?
There are specific deadlines for BOIR filings, depending on whether your company is newly formed or already in operation:
- Existing Companies: Businesses that were formed before the effective date of the BOIR regulations (January 1, 2024) have until January 1, 2025, to submit their beneficial ownership information.
- Newly Formed Entities: Companies formed after January 1, 2024, must submit their BOIR filings within 30 days of their formation date.
- Updates to Information: If there are changes in beneficial ownership (such as new owners or changes in ownership percentages), businesses must update their BOIR filings within 30 days of the change.
Failing to meet these deadlines can result in significant penalties, so it’s essential for businesses to mark their calendars and submit their filings on time.
Consequences of Non-Compliance
Businesses that fail to comply with BOIR filing requirements face harsh consequences, including:
- Civil Penalties: Companies may be fined up to $500 per day for failing to file or for providing incorrect information.
- Criminal Penalties: Willful violations of the BOIR filing requirements can lead to criminal charges, including fines of up to $10,000 and imprisonment for up to two years.
- Reputational Damage: Failure to comply with BOIR could also harm your business’s reputation, as non-compliance with transparency regulations may signal to partners, customers, and regulatory bodies that your business lacks accountability.
Given the severity of the penalties, it’s crucial for businesses to prioritize compliance with BOIR requirements and avoid costly mistakes.
Top Strategies for Staying Compliant
Meeting BOIR filing requirements and staying compliant can be challenging, especially for businesses with complex ownership structures or rapidly changing ownership. However, there are several strategies that can help your business navigate the process successfully.
1. Identify Beneficial Owners Early
Start by identifying all beneficial owners within your organization. This is often the most time-consuming part of the filing process, especially for businesses with multiple layers of ownership. Once owners are identified, gather the required information, such as legal names, addresses, and ID numbers.
2. Keep Detailed Records
Accurate and up-to-date records are essential for meeting BOIR requirements. Keep detailed records of all beneficial ownership information, and establish a process for regularly updating these records if ownership changes occur.
3. Set Internal Deadlines
Don’t wait until the official BOIR deadline approaches. Set internal deadlines to ensure your team has ample time to collect information, review ownership structures, and prepare the filing. This can prevent errors and minimize last-minute stress.
4. Use Compliance Software
There are various software tools available that can help businesses manage their compliance obligations. These platforms often automate parts of the filing process, such as gathering beneficial ownership information and reminding you of upcoming deadlines.
5. Consult a Legal or Compliance Expert
Given the complexity of BOIR requirements, it’s often helpful to consult with a legal or compliance expert. They can provide valuable guidance on the filing process, ensure your business is fully compliant, and help you avoid costly penalties.
Conclusion
The BOIR filing requirements are a critical part of increasing transparency in U.S. business practices and combating financial crime. By understanding who needs to file, what information is required, and when the deadlines are, businesses can avoid the severe penalties that come with non-compliance. Implementing proactive strategies like identifying beneficial owners early, maintaining accurate records, and seeking professional advice can help your company stay compliant and meet the BOIR filing deadlines without issues.
By staying organized and informed, your business will be well-prepared to navigate the complexities of BOIR filings, ensuring compliance and protecting its reputation.