As a result of the Corporate Transparency Act, many businesses are required to report Beneficial Ownership Information (BOI) before the end of the year. Failure to comply with the new requirement could result in significant penalties.
Here is an overview of what you need to know when it comes to reporting BOI.
What Is a Beneficial Owner?
“Beneficial ownership information” refers to identifying information about the individuals who directly or indirectly own or control a company.
A beneficial owner is an individual who either directly or indirectly:
- Exercises substantial control (see below) over a reporting entity or
- Owns or controls at least 25% of a reporting company’s ownership interests
There are a few things to note when considering the definition of beneficial ownership:
- Beneficial owners must be individuals — trusts, corporations or other legal entities are not considered beneficial owners
- Substantial control can be exercised in four different ways:
- Individual is a senior officer (CEO, CFO, COO)
- Individual has authority to appoint or remove certain officers
- Individual is considered an “important decision maker" (makes decisions on business, structure and finance)
How to Determine Whether an Owner Qualifies as a BOI
We understand that some organizations have complicated ownership structures. Below is a fictional example to help clarify whether ownership needs to be reported.
This reporting company is a corporation, and its total outstanding ownership interests are shares of stock. Three people (Individuals A, B and C) own 50%, 40% and 10% of the stock, respectively, and one other person (Individual D) acts as the organization’s president — but owns no stock.
Assuming there are no other relevant facts, Individuals A, B and D are all beneficial owners, and their information must be reported because:
- Individual A owns 50% of the company’s stock, which is greater than the 25% or more of the company’s ownership interests threshold
- Individual B owns 40% of the company’s stock, which is greater than the 25% or more of the company’s ownership interests threshold
- Individual D, as president, exercises substantial control over the company as a senior officer
Individual C is not a senior company officer and does not directly or indirectly exercise substantial control over the company. Additionally, Individual C only owns 10% of the company’s stock, which is less than the 25% or more interest threshold needed to qualify as a beneficial owner. Therefore, Individual C is not a beneficial owner and does not need to be reported.
What Information Needs to be Reported?
The full legal name and, if applicable, “doing business as” (DBA) of the company, along with the business address, state of registrations and IRS taxpayer identification number (TIN) must be reported.
Additionally, the reporting company must share the following details on its beneficial owner(s):
- Name
- Birthday
- Address
- Unique identifying number (e.g., social security number)
- Issuing jurisdiction
Filing & Deadlines
BOI report filings can be submitted online and are due:- January 1, 2025 for existing entities
- Within 90 days of registration with the state for entities formed in 2024
- Within 30 days of registration with the state for entities formed in 2025 and thereafter
Penalties for Noncompliance
The penalty for a business that does not comply with this new requirement is $591 per day, for every day the business is out of compliance. Criminal penalties for noncompliance include a $10,000 fine and/or up to two years of imprisonment.
Is Your Business Exempt From Reporting?
All businesses are required to report BOI, except the following types of entities:
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*In order to qualify for this exemption, your business must have:
- More than 20 full-time employees who live in the United States and work at least 30 hours per service week
- An operating presence at a physical office within the United States
- Filed a federal income tax return in the previous year demonstrating more than $5,000,000 in gross receipts
Need Help?
Gross Mendelsohn does not prepare BOI filings. If you need assistance, please contact your attorney.
You can read more information about the Corporate Transparency Act in our blog post, Your Business May Need to Comply With New Corporate Transparency Act. You can also stay to keep up-to-date with changes in BOI from FinCEN here.
