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Writer's pictureKeri

Understanding Beneficial Owner Information Reporting: What Small Business Owners Need to Know

Starting and running a small business involves navigating numerous regulations and requirements. One of the newer obligations you might have heard about is the Beneficial Owner Information Reporting requirement. This might sound complex, but don’t worry! We're here to break it down in simple terms so you can understand what it means for your business.


What is Beneficial Ownership?


Before we dive into the reporting requirement, let's first understand what "beneficial ownership" means. A beneficial owner is an individual who:


- Owns or controls at least 25% of the company's equity interests (shares, membership interests, etc.).

- Exercises significant control over the company (like a CEO or a major decision-maker).


These individuals are the ones who benefit financially from the company’s success and have significant influence over its operations.


What is the Beneficial Owner Information Reporting Requirement?


The Beneficial Owner Information Reporting requirement is part of a law designed to increase transparency and prevent illegal activities like money laundering and tax evasion. It mandates that companies report information about their beneficial owners to a central database managed by the government.


Why Was This Requirement Introduced?


The primary goals of this reporting requirement are to:


- Enhance transparency: By knowing who really owns and controls companies, authorities can better track illegal activities.

- Prevent financial crimes: It makes it harder for criminals to hide their activities behind complex company structures.

- Support global efforts: Many countries are implementing similar measures to tackle financial crime on a global scale.


Who Needs to Report?


Most small businesses, including corporations, limited liability companies (LLCs), and other similar entities, will need to report their beneficial owners. However, there are some exceptions:


- Large operating companies with over 20 employees, more than $5 million in gross receipts or sales, and a physical presence in the U.S. are exempt.

- Publicly traded companies already report similar information to other government agencies.

- Inactive entities that haven’t engaged in business or held assets in the past 12 months are also exempt.


What Information Needs to Be Reported?


For each beneficial owner, you'll need to provide:


- Full legal name

- Date of birth

- Residential or business address

- A unique identifying number from an acceptable document like a passport or driver’s license


When Do You Need to Report?


- Existing companies will have a set timeframe to report their beneficial owners after the regulation comes into effect.

- New companies will need to report their beneficial owners when they register their business.


How Do You Report?


The process involves submitting the required information to a secure online database managed by the Financial Crimes Enforcement Network (FinCEN).



What Happens If You Don’t Report?


As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation. As of the time of publication of this post, this amount is $591.


A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.


How to Prepare


Here are some steps to get ready for the Beneficial Owner Information Reporting requirement:


1. Identify Beneficial Owners: Determine who owns or controls at least 25% of your company and who has significant influence over it.

2. Collect Required Information: Gather the necessary details for each beneficial owner.

3. Stay Informed: Keep an eye out for updates from government agencies regarding the reporting process and deadlines.


Final Thoughts


The Beneficial Owner Information Reporting requirement might seem daunting, but it’s an essential step towards greater transparency and combating financial crime. By understanding what’s required and preparing in advance, you can ensure your business remains compliant and avoid potential penalties.


If you have any questions or need assistance, consider consulting with a legal or financial advisor who can provide guidance tailored to your specific situation. Remember, staying informed and proactive is the key to managing your small business successfully!

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