Business entities operating in the United States need to prepare for new compliance requirements taking effect on January 1, 2024. The Corporate Transparency Act (CTA) requires LLCs and corporations to submit BOI reports to FinCEN. These reports contain basic information about a company’s significant owners and important decision makers.
Whether your business is a solo venture or involves multiple partners, it’s crucial to proactively meet the BOI reporting requirements to avoid harsh penalties. In this article, we recommend steps that business owners should take to ensure their companies comply with the Corporate Transparency Act.
What are Beneficial Ownership Information Reporting Requirements?
Starting from January 1st, 2024, both new and existing business entities must file Beneficial Ownership Information (BOI) reports with FinCEN. This includes most LLCs and corporations formed in the U.S. These reporting requirements were introduced as part of the Corporate Transparency Act, a federal law that combats illegal financial activity, like money laundering.
BOI reports require companies to disclose personal information about each of their beneficial owners and control parties. These individuals include the direct owners of the company, as well as any other important decision makers.
The following information needs to be provided for each individual being reported to FinCEN:
- Full name
- Residential address
- Date of birth
- Image of a valid ID document
Complying with the Corporate Transparency Act goes beyond just filing a BOI Initial report however. Reporting companies need to keep their Beneficial Ownership Information up-to-date with FinCEN at all times to remain compliant and avoid penalties. BOI Updated reports must be submitted within 30 days of any changes, such as changes in residential addresses or ownership transfers.
8 Tips for Complying with the Corporate Transparency Act
Completing a Beneficial Ownership Information report can be straightforward for one person companies, like single-member LLCs. However, the more people involved in a reporting company, the harder it gets to collect BOI and keep it up to date.
Here are some proactive steps that businesses can take to streamline the BOI reporting process and ensure compliance:
Tip #1.) Understand the BOI Reporting Requirements
Taking time to learn the basics of Beneficial Ownership Information reporting is an important first step of getting on track to compliance. Business owners should understand the terms and language used around BOI reporting, such as “beneficial owner”, “substantial control” and “company applicant”.
Learn some of the nuances of BOI reporting and how they might specifically apply to your company. For example, consider how it might be possible for someone indirectly involved in your company to qualify as a beneficial owner. A thorough understanding of the requirements can help ease the compliance process going forward.
Tip #2.) Identify all Relevant Parties for Beneficial Ownership Reporting
Reporting companies need to include their beneficial owners, control parties and company applicants in their Beneficial Ownership Information reports. Business owners need to ensure that none of the company’s important decision makers are overlooked in the report.
Tip #3.) Develop a Data Collection and Storage System
Implement systems to facilitate smooth data gathering. Design forms or checklists to help beneficial owners provide the necessary information for the BOI report.
Some of the information required in a BOI report is sensitive. For example, beneficial owners need to provide a current residential address and picture of a valid ID document. Reporting companies should consider how they are going to securely store any personal identifiable information when submitting BOI Initial reports, and any Updated reports.
Tip #4.) Appoint a CTA Compliance Officer
Some companies may benefit from having one person in charge of the company’s CTA compliance journey. Having a dedicated Compliance Officer can help steer the company towards its compliance goals by ensuring proper Beneficial Ownership Information collection and updates.
Tip #5) Educate All Stakeholders about the Corporate Transparency Act
Effective communication is crucial for CTA compliance. Everyone involved in a reporting company should be aware of the CTA and understand the BOI reporting requirements.
Holding CTA workshops or training sessions with key individuals can be effective ways to communicate crucial information about a reporting company’s requirements. Consider creating other useful resources for stakeholders, like a detailed booklet or guideline document, that highlight how Beneficial Ownership Information reporting uniquely impacts them.
Getting everyone on the same page about the Corporate Transparency Act can promote collaboration around a company’s compliance efforts.
Tip #6) Develop a BOI Change Management System
For many businesses, keeping BOI information up-to-date with FinCEN is the hardest part of CTA compliance. As a company grows, it becomes increasingly difficult to manage changes in BOI that require filing a BOI Updated report.
Reporting companies must handle changes in Beneficial Ownership Information diligently to ensure data accuracy and minimize reporting errors. Senior officers face serious penalties if a reporting company fails to disclose any changes in BOI to FinCEN within 30 days.
Tip #7) Keep Track of Compliance Deadlines
Completing a FinCEN Beneficial Ownership Information report can take time. Awareness of BOI reporting deadlines is essential to avoid last-minute rushes and potential penalties for late reports.
Business owners should set up a system of alerts and reminders for their specific compliance deadlines:
- New companies formed after January 1, 2024, have 90 days to complete a BOI Initial report, starting from the date of formation in their home state.
- Existing companies formed before 2024 have until January 1, 2025, to complete their BOI Initial reports.
- All companies have 30 days to submit a BOI Updated report in case of Beneficial Ownership Information changes.
Tip #8) Maintain Detailed and Accurate Records
Keep detailed records of any Beneficial Ownership Information reported to FinCEN. A reporting company should be prepared to explain its ownership and management structure in the event of an investigation by FinCEN.
Reporting companies should document significant individuals that they choose not to include in the Beneficial Ownership Information report. A company’s officers should be able to explain why a particular individual is not included in the BOI report.
What are the Penalties for Not Complying with the CTA?
Reporting companies must file complete and accurate Beneficial Ownership Information reports before the specified deadlines to comply with the CTA. Failure to do so can result in severe civil and criminal penalties, including:
- Civil penalties for BOI reporting violations, with fines of up to $500 per day for each continuing violation.
- Criminal penalties for willful noncompliance with BOI reporting requirements can include fines of up to $10,000 and imprisonment for up to two years.
By following these proactive steps and staying informed about the Corporate Transparency Act’s requirements, businesses can navigate the compliance landscape effectively while avoiding potential penalties.