Understanding beneficial ownership report essentials

Alert: FinCEN has extended the filing deadlines to submit BOI Reports for certain reporting companies in response to some hurricanes. Check the U.S. FinCEN website to see if your company qualifies.

You may never have heard of “beneficial ownership,” but most small businesses must file a Beneficial Ownership Information Report (BOIR) with the federal government’s Financial Crimes Enforcement Network (FinCEN). The report identifies who owns or controls a business. Beneficial ownership reporting is part of the bipartisan Corporate Transparency Act, an effort to curb illicit finance and crack down on shell companies that serve as fronts for illicit and corrupt activities.

All LLCs, corporations, and other businesses created or registered to do business in the United States must file a report unless they qualify for an exemption. Companies formed before 2024 have until Jan. 1, 2025, to file their initial reports, but businesses newly created or registered in 2024 have only 90 days from their creation or registration to report information to FinCEN. For companies formed in 2025 or later, the filing deadline is 30 days  days from their creation or registration.

This article focuses first on the procedure for filing a report and then goes into detail about reporting requirements, including which businesses are required to file and what information should be included.

What is a Beneficial Ownership Information Report?

Beneficial Ownership Information Reports are intended to shed light on criminal activity that threatens national security, fair business competition, and our financial system. At the same time, the reporting system was designed to be simple and minimize burdens on small business owners.

Small businesses are often organized as LLCs or corporations because these business types can provide legal and tax benefits. However, criminals also use these U.S. business entities as shell companies, hiding their true identities and laundering ill-gotten gains through the United States. This allows illegal actors to benefit from participating in the U.S. economy, disadvantaging legitimate small businesses that play by the rules. Shell companies also impact national security.

The federal Corporate Transparency Act has established beneficial ownership information reporting as a way to make it harder for criminals to use U.S. legal structures for money laundering, human trafficking, drug crimes, and serious tax fraud.

Many small businesses are now required to file Beneficial Ownership Information Reports. Put simply, the reporting requirements mean businesses must provide identification information about their “beneficial owners.” Beneficial owners are the people who own and control the company.

Beneficial ownership information reporting applies to U.S. companies as well as foreign companies that have registered to do business in at least one U.S. state or American Indian tribe.

Because the act uses some specific terminology, understanding who needs to file a report and what you should include can seem confusing at first.

Key takeaways

• Under the act, businesses that must file a Beneficial Ownership Information Report are called “reporting companies.” A reporting company is a limited liability company, corporation, or other formal business entity that doesn’t fall within one of the exemptions listed in the Corporate Transparency Act.
• To file a report, reporting companies must provide identifying information about their “beneficial owners.” A beneficial owner is a person who owns at least 25 percent of the company or exercises substantial control over the company.
• Reporting companies created or registered in 2024 or later must also provide information about “company applicants.” Company applicants are the people involved in filing business creation or registration paperwork. Businesses created or registered before Jan. 1, 2024, do not have to include company applicant information in their reports.

Reports are filed online with the U.S. Treasury Department’s Financial Crimes Enforcement Center (FinCEN). FinCEN maintains a secure portal for receiving reports. 

Beneficial ownership information: What to include and how to file

If your business is required to file a Beneficial Ownership Information Report, it helps to understand the filing process and gather the needed information before you fill out the report. If you want help, Legal Zoom can assist you in preparing and filing your Beneficial Ownership Information Report.

Beneficial ownership information to include in the report

When you prepare your BOI report, you’ll provide the following information about your company:

• Its full legal name
• Any DBAs or fictitious business names
• The company’s current U.S. address. For U.S. companies, this is your principal place of business. For foreign companies, this is your main business location in the U.S.
• The state, foreign, or Tribal jurisdiction where your business was created
• Foreign businesses must also list the U.S. state or Tribal jurisdiction where the business first registered to transact business in the United States.
• The company’s tax ID number, which is usually its employer identification number (EIN). If a foreign company doesn’t have an EIN, it should list a taxpayer identification number from a foreign jurisdiction.

The BOIR also includes information about your company’s beneficial owners. Companies formed or registered on or after Jan. 1, 2024, must also provide information about company applicants. Companies formed or registered before 2024 do not need to include company applicant information.

Here’s the information you’ll need for each beneficial owner or company applicant:

• The person’s full legal name
• Their current street address
• A non-expired identification document. Provide the name of the issuing jurisdiction and the identifying number (such as a driver’s license number or passport number). You’ll also need to upload an image of the non-expired identification document with the identifying number clearly visible. An acceptable identification document is one of the following:
  • U.S. passport
  • State driver’s license
  • Other identification documents issued by a U.S. state or local government or American Indian tribe.
  • If the beneficial owner doesn’t have any of the above documents, a foreign passport is acceptable.

Both companies and individuals have the option of submitting identification information to FinCEN and obtaining a unique identification number known as a FinCEN identifier. The FinCEN identifier can be listed on the BOIR instead of the individual items of identification information. This could be especially convenient for people who are beneficial owners of multiple reporting companies.

How to file a Beneficial Ownership Information Report

Beneficial Ownership Information Reports must be filed electronically with the Financial Crimes Enforcement Network (FinCEN). FinCEN has established a secure filing system portal for this purpose. You cannot file a BOIR by fax or mail. 

There are two filing options: by PDF or electronic filing. There are two filing options: PDF and electronic. The person preparing the report must enter their name and email address on the FinCEN website. Filers will receive an email confirmation. While there is no fee to file the report, meeting the requirements for the report may be challenging, depending on the ownership structure of the business. LegalZoom can help your business file the report and stay in compliance.

Beneficial ownership reporting deadlines

The deadline for filing an initial Beneficial Ownership Information Report depends on when your business was created or registered. A corporation, limited liability company, or other U.S. business entity is created when documents are filed with a Secretary of State or similar office to officially establish the business. For foreign business entities, the registration date is the date the business first filed documents with a Secretary of State or similar office to register to do business in a U.S. state or tribal jurisdiction.

For reporting companies created or registered before Jan. 1, 2024, the deadline for filing an initial report is Jan. 1, 2025. Reporting companies created or registered in 2024 must file a BOIR within 90 days of receiving actual or public notice of the company’s creation or registration. For reporting companies created or registered on or after Jan. 1, 2025, the BOIR deadline is 30 days after receiving actual or public notice of the company’s creation or registration. 

Updating or correcting a Beneficial Ownership Information Report

A Beneficial Ownership Information Report doesn’t expire, so you only need to file one report as long as the information in it remains accurate. However, if any of the information in your report changes, you’ll need to file an updated BOI report within 30 days of the date the change occurred.

Changes that would require an updated report include:

• Changes to your business information, such as adding a new DBA or moving to a new business address
• Changes in who owns or controls your business. This could include adding new beneficial owners, having beneficial owners leave the business, or hiring a new manager or chief executive.
• Changes in the information you reported about a beneficial owner, including changes to their name; address; or identifying number on their driver’s license, passport, or other identification document.

If you find an inaccuracy in a report you’ve already filed, you have 30 days after discovering the inaccuracy to file a corrected report. If your company becomes exempt from reporting after you’ve filed your initial report, you can file an updated report indicating that you are now exempt and do not have to report information about your company’s beneficial owners.

Beneficial ownership: Understanding your obligations

The technical-sounding terms associated with Beneficial Ownership Information Reports could lead you to think BOIRs and the Corporate Transparency Act are for large businesses. However, large operating companies are exempt from BOI reporting, while smaller businesses are likely to be required to file reports. 

As a small business owner, you first need to determine whether your business is a reporting company that must file a Beneficial Ownership Information Report. Then, you need to identify the beneficial owners of your business—those who own the company or exercise substantial control over it. The following sections explain more about the reasoning behind the bipartisan Corporate Transparency Act, the companies required to file, and the individuals who should be listed on a BOI report. 

The Corporate Transparency Act

The Corporate Transparency Act is part of the National Defense Authorization Act enacted by Congress on Jan. 1, 2021. The act includes major changes to money laundering laws aimed at combatting money laundering, terrorist financing, tax fraud, and corruption.  

Under the act, companies created or registered to do business in the United States must file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network (FinCEN) unless they qualify for an exemption. The report lists identity information for each person who owns or controls the company.

The act is the culmination of more than a decade of effort to develop a system for reporting information about the people who own and control companies doing business in the United States. While most U.S. companies are honest small businesses, there are also criminal enterprises that use anonymous shell companies to hide illicit activities like corruption, money laundering, drug trafficking, and human trafficking.

Law enforcement agencies have a hard time tracking and prosecuting these activities because the identity of the people involved is masked by the shell companies. This activity undermines fair business competition and poses a risk to the country’s financial system and economic and national security. Although filing a report with the government can seem burdensome to a small business owner, one of the act’s goals is to provide America’s small businesses with a fair, competitive environment. 

Beneficial ownership information can be shared with federal, state, local, and Tribal officials for authorized activities related to national security, intelligence, and law enforcement. It can also be shared with certain foreign officials who make a request through a U.S. government agency. Furthermore, information may be shared with financial institutions in certain situations if the reporting company consents to it. Beneficial ownership information is not available to the public.

Businesses that don’t file or update a required report can face both civil and criminal penalties. Civil penalties include fines of up to $500 a day for continuing violations. Criminal penalties can include fines of up to $10,000 and two years of imprisonment. Senior officers can be held accountable for a reporting company’s failure to file a BOI. In addition, beneficial owners can be civilly and criminally liable if they either refuse to provide identity information or provide false information. 

Reporting company defined

Businesses that meet the definition of a reporting company and that don’t fall within an exemption must file a Beneficial Ownership Information Report. Domestic reporting companies are businesses created by filing a document with a Secretary of State or similar office of any U.S. state or Tribal jurisdiction. Foreign reporting companies are companies formed in a foreign country that have registered to do business in any U.S. state or tribal jurisdiction by filing a document with the state or American Indian tribe.

The definition of reporting companies includes corporations, limited liability companies, and other legal entities created at the state level. Sole proprietorships and informal or general partnerships are not legal entities. Therefore, they’re not considered “reporting companies” and are not required to file a BOIR. 

Some businesses that fall within the “reporting company” definition are exempt from filing a BOIR. These exceptions primarily apply to larger companies, nonprofits, and specific industries. Here’s a checklist to help you determine whether your reporting company is exempt from beneficial ownership information reporting.

• Large operating companies. Large operating companies are businesses that meet all of these criteria:
  • Have an operating presence at a physical location in the United States.
  • Have more than 20 full-time employees in the U.S.
  • Filed a tax return last year reporting more than $5 million in gross receipts or sales (not including foreign receipts or sales).
• Publicly traded companies. Companies registered under Section 12 of the Securities and Exchange Act of 1934 are exempt. Also exempt are entities that are required to file supplemental and periodic information under section 15(d) of the 1934 Act.
• Nonprofits. Certain tax-exempt entities described in Section 501(c) of the Internal Revenue Code, as well as political organizations under Section 527(e)(1) of the Code, and trusts described in paragraph (1) or (2) of Section 4947(a) of the Code are exempt. Certain entities that advise tax-exempt entities are also exempt.
• Inactive entities. An inactive entity is a business that existed prior to 2020, is not conducting active business, has no foreign owners, has not had an ownership change in the last 12 months, has not sent or received more than $1000 in the past 12 months, and has no assets.
• Banks and related industries. Businesses such as banks, credit unions, banks, savings and loan holding companies, and money-transmitting businesses may be exempt.
• Securities-related businesses that have registered with the Securities and Exchange Commission. These include securities brokers and dealers, securities exchanges and clearing agencies, other exchange act registered agencies, an investment company, investment advisors, and venture capital fund advisors. 
• An insurance company. State-licensed insurance producers that maintain a physical office in the U.S. are exempt.
• Commodity Exchange Act registered companies
• Public utilities
• A financial market utility
• A pooled investment vehicle
• Entities that exercise governmental authority

If your business is a reporting company that falls within any of these exemptions, it does not need to file a BOIR. However, exempt entities must file a BOI report if there are changes to the business in the future that cause them to lose their exemption. The report must be filed within 30 days of the date the change occurred.

Beneficial ownership

A beneficial owner is someone who owns 25 percent or more of the ownership interests in the business or who exercises substantial control over the business. Your business may have multiple beneficial owners.

A company’s ownership interests can consist of equity, stock, or voting rights in a corporation or an interest in the assets or profits of an LLC. Ownership interests can also be more indirect. Indirect forms of ownership include an instrument or option that’s convertible into equity, stock, voting rights, or an interest in LLC assets or profits.

To determine which beneficial owners to list on your BOIR, begin by identifying everyone who has an ownership interest in your business. Then, identify which of those individuals have an ownership interest of 25 percent or greater. The calculation will be simple for many small owner-operated businesses. However, if your business has a more complicated ownership structure, you’ll find more detailed information and examples in FinCEN’s Small Business Compliance Guide.

You’ll also need to identify and list the individuals who are considered beneficial owners because they have substantial control over your business. FinCEN identifies four types of individuals who exercise substantial control:

• Senior officer. This includes a company’s president, chief executive officer, chief operating officer, chief financial officer, general counsel, or any person who serves the same function as one of these officers.
• Individuals with appointment or removal authority. This includes anyone who has the authority to appoint or remove a senior officer or a majority of the board of directors or other governing board.
• An important decision maker. Important decision-makers have the authority to make major decisions about the company’s business, finances, and structure.
• Catch-all. This includes individuals who have substantial control over the company in ways not described above.

There are a few exceptions where someone who would otherwise be a beneficial owner is exempt from reporting. These include minors (you can report a parent’s information instead),  individuals acting on behalf of an actual beneficial owner (you’ll report the actual owner); employees other than senior officers who are only carrying out their employment duties; individuals whose only interest in the company is that they might inherit an interest in the future; and creditors of the company.

Beneficial ownership information reporting for companies formed in 2024 and after

Reporting companies created or registered on or after Jan. 1, 2024, have to include information about company applicants in their BOI reports, and they have a shorter filing window than existing companies formed before 2024.

While reporting companies created or registered before 2024 have until Jan. 1, 2025, to file a BOIR, reporting companies newly created or registered in 2024 have just 90 days from the date they received notice of the business’s formation to file a BOIR. For reporting companies created or registered in 2025 or later, the deadline is shortened to 30 days.

Creation or registration explained

These reporting companies are subject to the additional requirement of listing their company applicants:

• LLCs, corporations, and other types of reporting companies that were created on or after Jan. 1, 2024, by filing paperwork with the Secretary of State or similar agency in any U.S. state.
• Foreign businesses that filed their first registration to do business in the United States on or after Jan. 1, 2024.

Existing companies formed or registered before Jan. 1, 2024, do not have to include company applicant information in their beneficial owner information reports.

Company applicant

A company applicant is a person involved in filing the documents to create or register your business. Company applicants must be individuals; they cannot be businesses. There are two types of company applicants, and your business may have only one or both.

• The direct filer. All reporting companies must list identity information for a “direct filer.” A direct filer is a person who physically or electronically submits business creation or registration paperwork to the state for filing.
• The person who directs or controls the filing action. If someone other than the direct filer was primarily responsible for directing or controlling the filing with the state, that person must also be listed as a company applicant.

For example, if you prepare and file your business formation paperwork yourself, you’ll list only yourself as a company applicant because you are the direct filer and no one else was involved. But if you prepared the necessary documents and asked your employee to handle the filing, then the employee would be the direct filer, and you would be the person who directed or controlled the filing. 

If a business formation service only provides software, online tools, or generally applicable written guidance that is used to file a creation or registration document for a reporting company, and employees of the business service are not directly involved in the filing of the document, the employees of such services are not company applicants. For example, an individual may prepare and self-file documents to create the individual’s own reporting company through an automated incorporation service. In this case, this reporting company reports only that individual as a company applicant.