Understanding Beneficial Ownership Report Essentials

A federal district court in Texas suspended the enforcement of the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements on Dec. 3, 2024. However, the federal government appealed this ruling.

In case the requirements are reinstated, businesses may consider preparing their ownership information even though they are not currently required to file BOI reports. The outcomes of this ruling affect most businesses in the U.S., so it’s crucial to stay informed of any changes.

You may never have heard of “beneficial ownership,” but most small businesses can 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.

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.

Put simply, the reports mean businesses can provide identification information about their “beneficial owners.” Beneficial owners are the people who own and control the company.

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 you intend 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 can 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
• 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. 

If the form requests information about each beneficial owner or company applicant, you may be asked to provide:

• 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 be asked 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 can 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: PDF and electronic. The person preparing the report can 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, filing 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: Who qualifies? 

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. 

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 can file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network (FinCEN). The report lists identity information for each person who owns or controls the company.

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.

Reporting company defined

Businesses that meet the definition of a reporting company and that don’t fall within an exemption can 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." 

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

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 can also 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.