Understanding Beneficial Ownership Information for the Corporate Transparency Act

The Corporate Transparency Act (CTA) has introduced new reporting requirements for businesses in the United States as of January 1, 2024. At the heart of this legislation is the Beneficial Ownership Information (BOI) reporting, overseen by the Financial Crimes Enforcement Network (FinCEN). This new regulation aims to increase transparency in business ownership and control structures.

 

Beneficial Ownership Information Explained

Under the CTA, a beneficial owner is defined as an individual who either:

• Directly or indirectly exercises substantial control over a reporting company, or

• Owns or controls at least 25% of the reporting company’s ownership interests

It’s important to note that beneficial owners must be individuals, not entities. If an entity controls your business, you’ll need to report the individuals who control that entity. This requirement adds a layer of complexity to the reporting process, as it necessitates a careful assessment of who truly exerts substantial control over the company.

 

Determining Substantial Control and Filing Your Report

The concept of “substantial control” is central to BOI reporting. While ownership stakes of 25% or more are straightforward to identify, determining who exercises substantial control can be more nuanced. As a general rule, it’s advisable to include:

• Owners with less than 25% stake who still exert significant influence

• Chief Financial Officers (CFOs)

• Chief Operating Officers (COOs)

• Other key decision-makers in the company

To comply with the CTA, businesses will need to submit their BOI reports through the FinCEN website. The report must include validating information for each beneficial owner, such as:

• Driver’s license details

• Passport information

• Other official documents that verify the individual’s identity

When in doubt, it’s better to err on the side of caution and include anybody who you believe are key individuals for your business in your report.

 

Ongoing Compliance and Penalties

After submitting the initial BOI report, companies must update FinCEN within 30 days of any changes to the reported information. This includes updates to:

• Personal information of beneficial owners

• Changes in ownership structure

• Alterations in control of the company

The strict 30-day window for updates is coupled with severe penalties for non-compliance. Failure to report changes within this timeframe results in a fine of $500 per day. For example, if a company is 10 days late in reporting that their COO’s driver’s license has expired, they could face a $5,000 penalty.

 

Beware of Scams

Given the complexity of these requirements, many businesses are turning to third-party services for assistance with BOI reporting. While several reputable companies, like CorpNet, offer these services at reasonable rates, it’s crucial to be cautious. The sensitive nature of the information required for BOI reports has attracted the attention of hackers and scammers. Always verify the legitimacy of any service provider before sharing your company’s sensitive data.

You can also visit us at http://www.craigcodyandcompany.com, and we can help you get your Beneficial Ownership Information in order in time for the January 1, 2025 deadline. 

 

Key Takeaway

The initial BOI filing, while important, is just the beginning of a company’s compliance journey under the Corporate Transparency Act. The real challenge lies in maintaining ongoing compliance with the 30-day update requirement. To avoid potentially significant penalties, businesses need to implement robust systems for tracking changes in beneficial ownership information. This may involve regular internal reviews, designated compliance officers, or partnering with trusted third-party services. 

By prioritizing ongoing compliance, companies can navigate the new regulatory landscape effectively and avoid costly penalties.

To discover more about how to get compliant under the new Corporate Transparency Act, tune in to this episode of The Progressive Agency Podcast to hear more from host Craig Cody.