Keeping up with the regulatory landscape is no easy task. But it’s a task you must do. That’s why you also must get familiar with Beneficial Ownership Information (BOI) Reporting, a crucial new law that aims to enhance corporate transparency.
Introduced by the Corporate Transparency Act (CTA) in 2021, this law went into effect on January 1, 2024. The law requires companies to disclose personally identifiable information about their so-called “beneficial owners” to the Financial Crimes Enforcement Network, or FinCEN for short.
As it usually goes, non-compliance is not an option.
Fail to submit an accurate and up-to-date BOI report, and you risk severe consequences. How severe? Civil fines of up to $591 per day. Potential penalties of up to $10,000. Two years in prison for intentional violations. That’s how severe.
But the good news is that businesses can protect themselves from these costly penalties. All they need to do is prioritize compliance. In this guide, you’ll discover the best practices to do just that.
Understanding the Requirements
You can’t comply with regulations you don’t fully understand, can you? So, first, let’s go over the basics when it comes to BOI reporting.
What Are the Specific Requirements for Beneficial Ownership Reporting in Your Jurisdiction?
Historically, only a few jurisdictions in the United States required legal entities to disclose beneficial ownership information. The Corporate Transparency Act stepped in to change the game, mandating that all covered entities report their beneficial owners to the FinCEN.
So, while specific requirements for BOI reports might vary slightly based on your jurisdiction, the core principle remains consistent across the board – 1) identify the beneficial owners and 2) disclose their information.
Who Is Considered a Beneficial Owner?
A beneficial owner is an individual who holds a significant stake in a company – specifically defined as owning 25% or more of the company’s equity. Alternatively, the owner might exert substantial control over the business.
But what exactly does “substantial control” mean? It refers to the ability to influence or make key decisions affecting the company’s operations, finances, or structure. It’s the level of control held by the likes of senior officers, such as the Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer.
But regardless of who the beneficial owner is, one thing’s for sure – it must be a natural person. Trusts, corporations, and other legal entities can’t be classified as beneficial owners. There can, however, be multiple beneficial owners, as there’s no maximum number that must be reported to FinCEN.
What Information Is Required to Be Reported?
Beneficial ownership reports include several key components.
When completing the online form, you’ll begin by indicating the filing type – an initial filing, correction, or update.
Next, provide the company’s name, address, jurisdiction of formation, and tax ID number.
For initial BOI reports, it’s also necessary to include information about the company applicant – the individual who filed the registration documents. This could be anyone authorized by the company – a lawyer, a Certified Public Accountant, or the business owner themselves.
Now, we get to the heart of the matter: beneficial ownership information.
This section must include the name, address, birth date, and an identifying document (e.g., a driver’s license or passport) for each beneficial owner. For companies formed after January 1, 2024, the detailed information will also refer to the company applicant.
Best Practices for Compliance
Establishing compliance isn’t just a box to check. It’s an all-encompassing, carefully thought-out strategy that safeguards your business and fosters a culture of integrity. Here are the best practices to keep you compliant, protected, and always a step ahead.
Establish a Compliance Program
A solid compliance program is your first line of defense for managing BOI reporting. After all, for companies operating across multiple countries, dealing with unique reporting requirements can quickly become a rather tangled web.
That’s where a centralized compliance management system comes in, making it easier to track and streamline processes, no matter the jurisdiction. Best of all? A well-designed program doesn’t just ensure compliance. It also builds a culture of transparency and accountability across your organization.
But how can you go about establishing this program? Answer the following three questions; that’s how.
No. 1 – Who Is Responsible for Compliance?
Start by clearly designating who’s responsible for BOI compliance. Who’s filing updates with the FinCEN? Who’s tracking changes to beneficial owners?
Clear assignment of duties keeps everyone on the same page and prevents compliance from slipping through the cracks.
Beneficial owners with a FinCEN ID update their info through their login.gov accounts, so establish a system to verify they’ve made those updates.
You can also leverage compliance software to make these data updates seamless, thus eliminating the need for full reentry (which the FinCEN website requires).
No. 2 – What Policies and Procedures Are in Place?
Effective BOI compliance requires clear, proactive policies and procedures.
Start with defined steps for updating beneficial owner information and designate roles for each part of the reporting process. These steps should also include regular touchpoints to check if beneficial owners’ details have changed. The company’s HR department should be included in these notifications, as these professionals can monitor for role changes that might trigger new reporting.
There should also be a plan for updating the reporting process if necessary. For instance, one team member can track legislative shifts (and the effectiveness of the reporting process within the company) and then adapt the procedures accordingly.
Most importantly, all policies should be centralized and require employee signatures or digital acknowledgments. This way, everyone within the company knows – and signs off on – what’s expected.
No. 3 – How Often Are Compliance Reviews Conducted?
Regularly reviewing your compliance program is essential. But what exactly counts as “regular” for this process? At a minimum, plan on an annual review to spot gaps, refresh information, and stay aligned with any regulatory changes.
However, some situations may call for more frequent check-ins.
For instance, a simple ownership change should trigger a review. At the same time, events like mergers or acquisitions demand immediate attention.
Besides ensuring all records are accurate and current, these internal reviews should also cover compliance documents, training materials, and any past issues that might hinder progress. Keeping these reviews consistent and responsive will help your program stay fully in sync with reporting needs.
Identify Beneficial Owners
Identifying beneficial owners is the first big step in BOI reporting, as it’s essential to get a clear picture of exactly who owns and controls your company. This means more than just listing names; it involves a thorough look into the ownership structure and the connections among stakeholders.
No. 1 – How to Identify Beneficial Owners
Identifying beneficial owners is all about confirming who truly controls company assets. Here’s a quick roadmap on how to do so.
Start by gathering information on all the relevant assets, board members, and trust participants. Then, map the ownership structures to identify different layers of ownership (e.g., who holds capital shares, who has voting rights, etc.). With this method, you’ll capture both direct and indirect ownership. Finally, apply ownership thresholds (25% or more or substantial control) to see who truly qualifies as a beneficial owner.
No. 2 – How to Verify Beneficial Owners
To verify beneficial owners, organize all the collected data into a secure, centralized location. Then, conduct document checks by examining built-in security features (e.g., unique fonts, signatures, or official seals). Finally, cross-check the information gathered from owners with the original documents to confirm its legitimacy and rule out any potential inaccuracies or misrepresentations.
Collect and Maintain Accurate Information
Compliance is an ongoing journey, not just a one-time task. Once you’ve identified your beneficial owners, the next step is to keep meticulous records.
No. 1 – What Information Should Be Collected and Maintained?
Documentation is the backbone of effective BOI filing. So, make sure to maintain organized records that include personal information for the report, financial statements, incorporation documents, project details, and any other relevant paperwork. Remember, omissions can be as detrimental as errors. The more thorough your documentation, the smoother your filing process will be.
No. 2 – How Can Businesses Ensure Information Is Accurate and Up-to-Date?
A few practices can help you accomplish this important task. One is maintaining a centralized management system, as already discussed. Relying on manual methods, like spreadsheets and paper files, can only complicate tracking changes in ownership or personal details.
Using standardized forms also goes a long way toward capturing all the information you need, as the consistency will make gathering and comparing a breeze.
You’ll also benefit from establishing a verification schedule to check company information alongside updates from beneficial owners. Regular audits and reviews will help catch any discrepancies and ensure your records are current.
File Reports Accurately and on Time
Adhering to all the other best compliance practices means nothing if you don’t file the BOI report accurately and on time.
No. 1 – What Is the Filing Deadline for Beneficial Ownership Reports?
The filing deadline will depend on when your business was created.
Reporting companies established before January 1, 2024, have until January 1, 2025, to submit their initial BOI report. Those created in 2024 must file within 90 calendar days from the effective registration notice. For businesses formed in 2025 or later, the deadline is 30 calendar days from receiving the same notice.
No. 2 – How Can Businesses Ensure That Reports Are Filed Accurately and on Time?
The answer is simple – adopt proactive measures. These measures include establishing a robust internal calendar system to track important submission dates, informing all employees about their legal obligations (and the consequences of non-compliance), and setting clear deadlines for information submission. Of course, these deadlines should be well ahead of the legal deadline, and they should be preceded by several reminders through multiple communication channels.
Addressing Common Challenges
Let’s not sugarcoat it – many companies struggle with understanding the complexities of the BOI requirements. Unfortunately, this can only result in costly non-compliance. With this in mind, let’s single out the most common challenges in the BOI reporting process and tackle them head-on.
No. 1 – Identifying Beneficial Owners in Complex Corporate Structures
Identifying beneficial owners becomes complicated when ownership is layered through multiple entities or involves intricate arrangements. Additionally, the introduction of a “catch-all” provision by FinCEN includes individuals who exercise control in less conventional ways, further complicating the identification process. The solution? If the best practices outlined in this guide don’t work for your business, seek guidance from professionals like attorneys or Certified Public Accountants to provide clarification.
No. 2 – Dealing With Changes in Beneficial Ownership
Handling changes in beneficial ownership can feel overwhelming, but it’s a must. The basic rule is – document any change. Adding or removing an owner, shifting ownership percentages, updating personal information – document it all.
Also, make sure to keep thorough records of all attempts to contact beneficial owners and verify their details. If you find that they aren’t responding, don’t hesitate to report this to the FinCEN. After all, you only have 30 days to report the change, and you don’t want to face penalties for their lack of communication.
Compliance Is the Name of the Game
Be proactive. Stay informed. Foster a culture of compliance. These are at the core of all the best practices outlined in this article. With some preparation and a lot of focus, BOI reports should become just another routine part of the business operations. If this isn’t the case, don’t fret. You can always seek professional advice, including from FinCEN itself via the organization’s Contact page. The FinCEN’s website is also where you can find additional resources that go over the BOI reporting process in more depth, so take advantage of these tools to enhance your understanding and implementation.
