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A small business owner affected by the new beneficial ownership rule

The Beneficial Ownership Rule Will Soon Apply to Millions of Businesses—Is Yours One?

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Something big is coming in 2024 that will impact millions of businesses nationwide. Thanks to the Corporate Transparency Act (CTA), certain companies must start reporting beneficial owner information to the Treasury’s Financial Crimes Enforcement Network (FinCEN). This reporting is known as beneficial ownership information (BOI) reporting.

The goal of the new rule is simple: stop bad actors from getting away with illegal activities like money laundering and tax fraud. But the way to stop them—a.k.a. the BOI (Beneficial Ownership Information) Reporting Rule—is pretty complex. That’s why a coalition of organizations is trying to raise awareness and calling for a one-year extension.

But whether or not you’re ready for the new BOI rule (or are even aware of it), it’s slated to start on January 1, 2024. Is your business prepared?

What is the BOI Reporting Rule?

FinCEN’s BOI Reporting Rule requires certain companies to report company and beneficial owner information. Examples of reportable information include the business’s taxpayer identification number (TIN) and copies of each beneficial owner’s identification document (e.g., passport or U.S. driver’s license).

Failing to file the BOI report can result in big, fat penalties—hundreds of dollars per day and even jail time. FinCEN says that willfully failing to report truthful and accurate information can result in a civil penalty of up to $500 per day that a violation continues. Criminal penalties will cost you up to $10,000, up to two years of jail time, or both.

And who’s on the hook? Your company’s senior officers (e.g., company president) may be the ones held accountable if your company fails to file its BOI report.

Does the BOI Reporting Rule apply to your business?

This new rule is going to impact a heck of a lot of businesses—the AICPA estimates there will be a whopping 32.6 million BOI filings in 2024—and there’s a good chance it could apply to yours, depending on your structure. The rule applies to domestic companies that are structured as the following:

  • Corporation
  • Limited liability company (LLC)
  • Another entity (e.g., statutory trust) that was created by filing a document with a secretary of state or similar office

Not to mention, the BOI Reporting Rule also applies to foreign entities that were created by filing a document with a secretary of state (or similar office) to do business in the United States.

There are some business exemptions. You can view a complete list of companies exempt from the reporting requirements in FinCEN’s Small Entity Compliance Guide.

Okay, the rule applies to your business—now what?

If the BOI rule applies to your business, your company is known as a “reporting company.” As a reporting company, you are responsible for filing an electronic report with FinCEN that reports information about your business and its beneficial owners.

Your beneficial owners are those who either exercise substantial control over the reporting company (e.g., senior officers) or own or control at least 25% of the reporting company’s ownership interest (e.g., stock). Keep in mind that FinCEN has beneficial owner exemptions.

Existing businesses created/registered before January 1, 2024 have until January 1, 2025 to file. Businesses created/registered between January 1, 2024 and January 1, 2025 have 90 days to file the BOI report.

After you file, FinCEN will store the reported information in a database that is off-limits to the public but available to government and foreign officials (and sometimes financial institutions) by request.

Where can you obtain more information?

FinCEN’s new beneficial ownership rule is a lot to take in and it’s easy to get overwhelmed. But it’s an important rule impacting businesses nationwide (and beyond) beginning January 1, 2024.

So, it’s my goal to get the word out about the new rule. But, it’s complex. And there are many nuances of the rule that I didn’t cover in this article.

I’ll leave you with the following resources you can use for more information on the beneficial ownership information reporting rule:

Profile: Mike Kappel

Mike Kappel is the founder of Patriot Software, a leading provider of SaaS accounting software and payroll services for businesses and their accountants nationwide. With over 30 years of entrepreneurial experience, Mike knows what business owners face because he's faced it himself. For more information, please visit www.patriotsoftware.com. Follow @PatriotSoftware on Twitter.