What Is Beneficial Ownership Information and Why Is It Important for Compliance

Beneficial ownership information helps prevent financial crimes by increasing transparency in corporate structures. Businesses should stay informed on reporting requirements to avoid penalties and ensure compliance with evolving regulations.

By Brad Nakase, Attorney

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Table of Contents

1. A brief overview of reporting beneficial ownership information

2. How does beneficial ownership work?

3. Reasons why beneficial ownership reporting is important

4. Disclosure of beneficial ownership for limited liability companies

5. Particulars of LLC reporting

6. Detailed instructions for filing

7. Beneficial ownership report filing requirements

8. Learning about FinCEN’s part in BOI reporting

9. Who has permission to view the beneficial ownership information of a reporting company?

10. What’s the point of knowing about beneficial ownership?

11. What happens if beneficial ownership information is either not filed or filed incorrectly?

12. Common questions regarding beneficial reporting

A brief overview of reporting beneficial ownership information

On December 3, 2024, a federal district court in the state of Texas issued an order that temporarily halted the enforcement of the Corporate Transparency Act (CTA) and the reporting requirements that it imposes. Because of this, businesses are not required to submit reports on beneficial ownership information (BOI) at the present time.

Even though reporting is not required at this moment, the federal government has lodged an appeal. Companies should still think about collecting their ownership details just in case the requirement comes back. Keep yourself updated on any new information regarding this ruling, as it will have a significant impact on most businesses.

The federal Corporate Transparency Act (CTA) established the Beneficial Ownership Information Report (BOIR). The legislation is a component of a nationwide initiative to combat financial crimes; it became effective on January 1, 2024. The United States Treasury’s Financial Crimes Enforcement Network (FinCEN) is requesting that affected corporations and limited liability companies disclose information about beneficial ownership.

Under the final rule of FinCEN regarding beneficial ownership, the Corporate Transparency Act mandates that specific domestic and foreign reporting companies report beneficial ownership to the federal government directly.

How does beneficial ownership work?

Anyone meeting one of the following criteria is considered a beneficial owner by FinCEN:

Own at least 25% (in the form of equity, voting rights, stocks, or profit interests) in the reporting company.
Be very hands-on with the reporting company.

The phrase “substantial control” is also defined in a precise way in the statute. A person is considered to have significant control if they:

Function as a senior executive (chief executive officer, chief financial officer, or general counsel) for the benefit of the organization.
Exert control over the selection or dismissal of any high-ranking official or a supermajority of the board of directors.
Handle, decide, or significantly impact key business decisions, operating budgets, business line selection, compensation plans, or major contract terminations, as well as large expenditures and the company’s overall direction and strategy.

Reasons why beneficial ownership reporting is important

In the absence of oversight, corrupt individuals or those with political clout may attempt to hide their true wealth by establishing anonymous shell corporations or other intermediaries. These facilitate illicit financial transactions, such as tax avoidance and money laundering.

By disclosing BOIs, law enforcement is better able to trace illicit funds and prevent tax avoidance. By disclosing potential conflicts of interest and limiting hidden influence over businesses, beneficial ownership information reporting can help keep financial markets honest.

Disclosure of beneficial ownership for limited liability companies

You might be considered a reporting company if you formed your limited liability company (LLC) by submitting articles of organization or something similar. Let’s take a look at the details that the Department of Treasury requests from limited liability companies when they report beneficial ownership.

Particulars of LLC reporting

Your limited liability company’s beneficial ownership report will contain the following details:

The entire and official name of it
Anyone engaging in business under a different name (DBA)
Not a post office box, virtual mailing address, legal firm, or registered agent’s office, but its actual location
Its EIN or federal tax ID
Location where LLC was formed or registered

Along with the aforementioned details, the report also includes the following important information regarding the beneficial owners of the LLC:

Legal name
Birthdate
Present street address
A valid photo ID (passport, driver’s license, etc.) with a unique identification number and the authority that issued it
A photocopy or electronic version of the proper identification

When a limited liability company’s beneficial ownership information is inaccurate or updated, the company should disclose the change. Within thirty days of identifying the error or change, you must report the following changes:

Information that is not accurate, such as a misspelled word
Any changes to the name or address of the beneficial owners
The process of adding or removing beneficial owners
When a beneficial owner who is under the age of 18 becomes an adult
The passing of a beneficial owner

Formalities for submitting a beneficial ownership report

If you are required to submit a Beneficial Ownership Information Report, follow these steps.

Detailed instructions for filing

It will take some time to gather the necessary information and prepare for the BOIR’s important request. To make filing a breeze, just follow these five steps.

Determine who the company’s beneficial owners are. If someone owns 25% or more of your business or has significant influence over it, you must disclose this information. Get in touch with an attorney if you need help determining whether a person fits the beneficial owner criteria.

Assemble all necessary papers. Applicants for businesses—those who submit the articles of incorporation to the state government—are not the only ones the BOIR wants to know about; it also wants to know who the company’s beneficial owners are. Get everything you need, including full names, addresses, and government-issued IDs, ready to submit.

Utilize FinCEN’s safe BOI e-filing website to submit your paperwork electronically. There are four parts to the online form: filing, reporting, applicant, and beneficial owners. Be sure to fill out every section completely. To add another beneficial owner to your company, simply click the “add beneficial owner” icon. This feature is useful if your business has multiple owners.

Proofread the report and turn it in. Make sure you double-check your answers after you finish each of the four sections. If any data is incomplete or missing, the system will show that. After you’ve made the necessary edits and run the spellcheck, click “Submit.”

Verify with a printout. Keep a copy of your submission confirmation by downloading it. You can obtain a PDF of the transcript immediately after clicking the “Download Transcript” button. Put this document in a secure location with your company’s other official documents, such as the articles of organization and the certificate of good standing.

Beneficial ownership report filing requirements

Here is a rundown of everything you’ll need to submit the BOI report.

Certificates for a business’s DBA or trade name, articles of incorporation, or other governing documents
Federal tax ID number for businesses (EIN)
The official photo ID (passport or driver’s license) of the claimed beneficiary
Applicants’ official government-issued identification

Advice: Keep government ID scans to less than 4 MB in any of the following formats: .jpg,.jpeg,.png, or .pdf.

Learning about FinCEN’s part in BOI reporting

For the BOI reporting to be effective and enforced, the Financial Crimes Enforcement Network is vital.

For the purpose of recording beneficial ownership information from FinCEN, the Department of the Treasury has established a database known as BOSS. Law enforcement agencies can use FinCEN’s data to better understand and combat financial crimes.

The beneficial ownership information of each reporting company may be kept by FinCEN for a minimum of five years following the company’s termination.

Who has permission to view the beneficial ownership information of a reporting company?

It is not easy to get information out of BOSS. Rules for accessing and using beneficial ownership information specify who has permission to view what and how they can use it. For criminal cases like money laundering, FinCEN will only grant access to federal, state, local, and tribal government entities, including law enforcement agencies, beginning in the fall of 2024.

The first step is for the participating law enforcement agencies to sign an MOU outlining their plans to keep the information they share secure and private.

Foreign entities and financial institutions will be able to access beneficial ownership information directly from FinCEN by the spring of 2025, according to their projections. For guidance on requesting information from BOSS, consult a small business lawyer.

What’s the point of knowing about beneficial ownership?

It becomes more difficult for wrongdoers to take advantage of or hide behind opaque ownership structures when accurate data regarding beneficial ownership is available. One example is the use of shell companies to launder money from illegal activities. Without knowing who the beneficial owners are, it might be hard and time-consuming to spot trends in shell company risk.

As part of their standard due diligence procedures, financial institutions must gather beneficial ownership information, and regulators usually demand it as well. Governments that are in the business of awarding export licenses, loans, grants, and contracts find this information crucial. To add to that, it is a critical component of third-party risk management plans for companies across all industries. In order to comply with laws regarding sanctions, fraud, and money laundering, terrorist financing, as well as to measure risk exposure and mitigate it, beneficial ownership information is essential.

What happens if beneficial ownership information is either not filed or filed incorrectly?

Strict penalties apply in the event of infractions or inaccurate reporting. In addition to a $10,000 fine and two years in prison, those who knowingly and willfully violate the reporting requirements face fines of up to $500 per day for each day the violation continues.

The current policy allows for the correction of errors or omissions up to 90 days after the original report deadline. Companies risk criminal and civil consequences if they fail to report BOIs as required.

Common questions regarding beneficial reporting

1. In the US, who is required to submit a BOI report?

The vast majority of companies with a U.S. business registration are also reporting companies. Foreign (established in a country other than the United States but registered to do business here) or domestic (based in the United States) are two additional categories into which a reporting company may fall. But there are a few outliers.

2. Does BOI reporting have any exceptions?

Beneficial ownership does not apply to all individuals due to certain exceptions. They may be exempt depending on the kind of businesses they own. For instance, the FinCEN beneficial ownership rule does not apply to reporting companies that are big operating companies or publicly traded. In addition, the report is not required of sole proprietorships or other non-corporate entities registered with the state.

Companies that are members of the National Small Business Association (NSBA) are also currently not required to file the BOIR. The FinCEN guide has more specifics regarding exempt entities.

3. What is the process for submitting the Beneficial Ownership Information Report?

One option is to use a BOIR filing service, while another is to file electronically through FinCEN’s BOI website. Allow yourself at least an hour or two to finish the report if you want to submit it on your own.

4. Is it necessary to submit a fresh BOI report if I form an LLC in a different state?

If you move your LLC’s registration to a different state but keep the beneficial ownership information the same, you won’t need to revise or submit a new BOI report. It is sufficient to use your original BOIR until further instructions are given.

On the other hand, these regulations are subject to revision. For this reason, you should discuss your unique circumstances with a seasoned tax or small business attorney.

Have a quick question? We answered nearly 2000 FAQs.

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