What is a BOI and Do I Have to File?
Learn more about your BOI filing obligation
As you’ve most likely organized your small business under the veil of an LLC or Corporation, you are aware that these entities often have additional inherent requirements.
While operating as a separate entity is usually recommended for liability reasons, due to the passage of the Corporate Transparency Act, those with ownership stakes in small entities must file a Beneficial Ownership Information report moving forward. Current messaging surrounding the subject is lacking, though, leaving most people unsure of their obligations.
Let’s discuss the requirements for you to comply with these regulations and potentially avoid negative consequences.
Disclaimer: I’m neither an accountant, nor an attorney. For further information on this matter beyond this brief overview, or for assistance in filing your BOI, discuss the requirements with the other members of your legal and financial team.
What is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) Act became federal law January 1, 2021 aiming to crack down on illegal financial activities through corporate entities. A part of the National Defense Authorization Act, the CTA’s intent is preventing money laundering, terrorist financing, corruption, and tax fraud.
As of January 1, 2024, many business owners will be required to file with FinCEN their beneficial ownership information, with filing deadlines determined by when the entity was originally formed.
Who is a beneficial owner and what information do they need?
A beneficial owner is defined in the legislation as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the entity or owns or controls at least 25% of the ownership interests in an entity.
Each beneficial owner, to comply with federal law, must file with the Treasury’s Financial Crime Enforcement Network (FinCEN) their Beneficial Ownership Information (BOI).
When completing your initial filing, you’ll be asked for several pieces of personally identifiable information:
· Full legal name
· Date of birth
· Current residential or business street address
· Unique identifying number from an acceptable identification document
· Passport, driver’s license or government issued ID
· FinCEN Identifier
To avoid potential criminal fines and prison sentences, your BOI must be filed within the time limits afforded you by the CTA.
When does it need to be filed?
Filing deadlines are determined by the date the entity was initially formed. If the entity was formed prior to January 1, 2024, you have until January 1, 2025 to file your initial BOI with FinCEN. However, if your entity was formed after January 1, 2024, you’re given 90 calendar days from the date of organization to submit your initial filing.
These filings must be updated as conditions associated with your initial BOI filing change, such as change of address or ownership percentages, among others. If you need to make changes to your BOI, you have up to one year to submit an amended filing after these changes were made.
What if I don’t file?
Failure to comply with the BOI filing subjects you to civil penalties of $500 for each day of noncompliance. You may also face a fine of up to $10,000 and a sentence of up to 2 years in prison.
Why didn’t I know about this?
Many small business owners may not know about their BOI filing responsibilities under this legislation due to poor messaging surrounding the subject. The purpose of this blog is to provide a broad overview and assist business owners avoid penalties in case you were unaware of your obligation. If you didn’t know about BOI filings prior to now, I urge you to talk with your legal and financial team, as well as conduct additional research – beyond the scope of this short article – into this matter.
Is the CTA Constitutional?
This is a tough question to answer currently. On March 1,2024, a Federal Court in the Northern District of Alabama ruled in the case National Small Business United vs. Yellen that the CTA is unconstitutional. This ruling has placed a temporary stay on the filing requirement, but only as it applies to the roughly 65,000 members of National Small Business United. Do not perceive this ruling as a blanket vacatur for the nation’s small enterprises. Furthermore, the Treasury filed a notice of appeal on March 11, 2024 contesting the ruling on the constitutionality of the CTA. While the appeals process plays out, those who are required to file their BOI with FinCEN should continue doing so to avoid criminal penalties.
Can I Avoid Filing?
While avoiding filing your BOI with FinCEN presents you with fines and potential jail sentences, it may not be demanded as a result of your particular business’ attributes. The BOI filing is not a requirement for all business structures, therefore the following types need not file.
Sole proprietors
Tax-exempt entities
Entities already regulated by federal agencies
Large entities (20 or more full-time employees & greater than $5,000,000 in gross revenue)
General partnerships
Unless you fall within one of these categories, it remains in your best interest to adhere to filing your BOI with FinCEN.
While you may not have known about your BOI filing requirement prior to now, my goal is to ensure your awareness of these new requirements and associated penalties for noncompliance. Your business should be adequately protected financially, and avoiding potential fines is part of that overall plan. Prior to your next insurance renewal, let’s discuss ways to help you protect your business.