Published: April 10, 2024

Beneficial Ownership Information Reporting
From Our Alliance Partner – Harbor Compliance

Beneficial Ownership

A Note From The Clarus Team

Clarus Partners understands that navigating new regulations can be a challenge, especially when it comes to something as complex as Beneficial Ownership Information (BOI) reporting under the Corporate Transparency Act (CTA). While compliance is essential, we know your primary focus is on running your business.

That’s why we’re committed to keeping you informed and empowered. We believe transparency not only fosters trust with your clients, but also strengthens your organization’s governance and reduces risk. That’s why we partner with industry leaders like Harbor Compliance to bring clarity and solutions you are looking for.

Why Partner With Harbor Compliance For BOI Reporting?

We understand that BOI reporting can be complex. While Harbor Compliance excels in handling the intricacies of the CTA and providing a secure, user-friendly BOI Reporting Service, we at Clarus Partners strive to be a one-stop shop for your broader business needs. By partnering with leading specialists like Harbor Compliance, we ensure you have the best resources at your fingertips.

This new guide, provided by Harbor Compliance, provides a comprehensive overview of BOI reporting requirements and introduces you to the team at Harbor.

BOI Reporting

Beneficial ownership has become a topic of public interest since the Corporate Transparency Act’s (CTA) reporting requirement came into effect on January 1, 2024. As per the CTA, virtually all businesses operating in the US are required to provide information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). To help you comply with this requirement and ensure that your organization operates within the law, this guide explains all the details you need to know.

What is the Purpose of the CTA and What Organizations Must Report BOI?

The CTA is designed to prevent illegal financial activity through shell companies or illegitimate businesses. To achieve this goal, FinCEN is required to collect beneficial ownership information (BOI) from reporting companies. Beneficial ownership is defined as owning at least 25% of a company’s ownership interest or having substantial control over the company. 

If your organization is considered a reporting company, i.e., a corporation, LLC, or other entity formed or registered with the secretary of state or another governing body through the submission of appropriate registration documents, whether initially created outside of the US or not, you must submit a report that contains the identifiable information of all beneficial owners. It’s estimated that 97% of legal entities operating in the US will need to report BOI.

What Organizations are Exempt From Beneficial Ownership Reporting?

However, there are some exceptions to this rule. There are 23 types of organizations that are exempt from filing BOI reports because they are already heavily regulated or the collection of BOI doesn’t serve the public interest. These entity types are as follows:

  1. Securities reporting issuers
  2. Governmental authorities
  3. Banks
  4. Credit unions
  5. Depository institution holding companies
  6. Money services businesses
  7. Brokers or dealers in securities
  8. Securities exchange or clearing agencies
  9. Other Exchange Act registered entities
  10. Investment companies or investment advisers
  11. Venture capital fund advisers
  12. Insurance companies—Including any company whose “primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies,” as per 15 U.S.C. 80a-2
  13. State-licensed insurance producers
  14. Commodity Exchange Act registered entities
  15. Accounting firms
  16. Public utilities
  17. Financial market utilities
  18. Pooled investment vehicles
  19. Tax-exempt entities—Under Sections 501(a), 501(c), 527(a), 527(e)1, and 4947(a) of the Internal Revenue Code of 1986
  20. Entities assisting a tax-exempt entity—Any entity that exclusively governs or financially assists the above tax-exempt entities
  21. Large operating companies—Companies with over 20 full-time employees and over $5 million in annual sales
  22. Subsidiaries of certain exempt entities—Exemptions 1–21, excluding #6 and #18
  23. Inactive entities—Entities that existed on or before January 1, 2020, which currently aren’t engaged in any business activity or hold any assets, and haven’t had any ownership changes or received over $1,000 in the previous 12 months

Each entity type must meet specific criteria set by the CTA to qualify for an exemption. You can refer to the Small Entity Compliance Guide for a detailed overview of the requirements.

What is a Beneficial Owner?

In accordance with FinCEN’s final rule, a beneficial owner is a natural person who either owns at least 25% of a company’s ownership interest or has substantial control over the company. Meeting the first criterion is straightforward enough to identify beneficial owners. Anyone who directly or indirectly owns 25% or more of a company’s stock, voting rights, convertible instruments, or other ownership interests is considered a beneficial owner.

With regard to substantial control, the CTA identifies four specific types of individuals who possess it:

  1. Senior officers
  2. Individuals who have the authority to appoint or remove senior officers
  3. Key decision-makers
  4. Anyone who has significant control over a company’s operations

The CTA mandates that companies disclose all beneficial owners and provide their identifying information to FinCEN. This is done to prevent illegal activities via shell companies or legitimate businesses.

There are certain exceptions to the definition of a beneficial owner that you should keep in mind before including their information in your BOI report. The CTA has five exceptions from the definition of a beneficial owner, which are:

  1. Minors
  2. Nominees, intermediaries, custodians, or agents
  3. Employees
  4. Inheritors
  5. Creditors

It is important to note that there are specific criteria that a beneficial owner must fulfill to qualify for an exemption. For instance, if a person is an employee in the BOI reporting context, they must meet the following requirements:

  1. They must be under the control and will of the employer, who has the power to discharge them.
  2. Their economic benefits or substantial control over the company must be derived only from their employee status.
  3. They must not serve as the company’s senior officer.

It is also worth mentioning that there may be special rules that apply to some exceptions. For example, while you don’t need to report a minor’s information, you still need to include the identifying information of their parent or legal guardian in the report. Additionally, when the minor reaches legal age, you must submit an updated BOI report that includes their information.

If you need more details regarding the beneficial ownership exceptions, including qualification criteria and special rules, you can refer to FinCEN’s Small Entity Compliance Guide.

What is a Company Applicant?

It’s important to remember that in addition to beneficial owners, there is another group called company applicants that may need to be included in your report for the CTA requirements. If your company was established on or after January 1, 2024, you must provide their information as well.

There are two types of company applicants according to the CTA:

  1. People who directly filed the document that led to the formation of the reporting company.
  2. People who were responsible for directing or controlling the filing action.

If only one person was involved in the formation process, they will be considered the direct filer and the only company applicant who needs to be included in the report. This means that the second category is only relevant if two or more people registered the company.

It is important to keep the information of beneficial owners and company applicants up-to-date with FinCEN. After submitting the initial report, you are required to provide updates within 30 days of any changes in the information. This is a continuous responsibility that can be quite challenging for company owners who already have a lot on their plate.

What Penalties Can Result From Failing to Report Beneficial Ownership Reporting?

BOI Reporting isn’t optional, and not submitting an accurate report timely can expose you to significant penalties. 

There are two distinct BOI reporting violations:

  1. Willful provision or attempt to provide false or fraudulent BOI, documents, or photos
  2. Willful failure to provide a complete, updated BOI report

Both violations can result in civil or criminal penalties, which are outlined below:

  1. Civil Penalties – No more than $500 per day of continued violation
  2. Criminal Penalties – A fine of no more than $10,000, up to two years of imprisonment, or both

The US Code also prohibits any unauthorized use or disclosure of BOI. The civil penalty for this violation is the same, while the criminal is higher—up to five years of imprisonment and a fine of up to $250,000 (or both).

To avoid penalties, it is vital to submit your BOI report within the designated timeframe and update it regularly. The initial submission of the BOI report is only the first step, and the more challenging task is to make sure that the information provided is accurate and up-to-date. Failure to do so can result in violation penalties, which can be a constant source of worry for company owners.

The reason for this is that even minor changes in the information of the company’s beneficial owners must be reported to FinCEN. For instance, if a beneficial owner changes their government-issued photo ID after submitting it as proof of identity, the document is no longer considered valid. In such cases, you have 30 days to update the BOI report before violating CTA regulations.

However, there is good news as well, as the CTA provides a safe harbor. If you identify any inaccuracies in your BOI report and voluntarily submit an updated report within 90 days, you won’t be subject to penalties. Despite this, the possibility of errors or their consequences can make most people anxious.

Enjoy Risk-Free Beneficial Ownership Information Reporting With Harbor Compliance

We offer a BOI Reporting Service to help businesses meet CTA requirements without worrying about the filing process. Our service is secure, convenient, reliable, and mostly hands-off, freeing up your time to focus on core business operations. 

Facts to Know

  • BOI reports are not one-time filings: After submitting the initial report, organizations must keep their reported information current. Generally, FinCEN must be notified of information changes via additional updated or corrected reports within 30 days of the change occurring.
  • BOI reports contain personally identifiable information (PII): The BOI filing inherently requires sensitive information, which poses a data breach risk when collected through email or other unsecured means. 
  • Changes to BOI occur frequently and for many different reasons: Triggers for updated BOI reports include, but are not limited to:
    • A beneficial owner changing their name
    • A beneficial owner moving residences
    • A reporting company’s name changing, including registering a DBA
    • A reporting company’s place of business changing
    • etc.
  • From a risk perspective, it’s better to overreport than underreport: While failing to report complete or updated beneficial ownership information to FinCEN  or deliberately providing false or fraudulent beneficial ownership information may lead to severe penalties, reporting BOI, even if it’s not required, incurs only the resources it takes to submit the filing.

When you partner with us, we gather your BOI and submit it to FinCEN. We provide ongoing support to ensure your report remains accurate and updated. Our service is available to all reporting companies, including corporations, LLCs, nonprofits that aren’t 501(c) exempt, small businesses, multinational companies, and multi entity businesses.

Our secure technology and regulatory expertise make us one of the nation’s leading providers of compliance solutions. We can help your organization run smoothly without regulatory setbacks, regardless of its ownership and leadership structure. 

After filing your initial BOI report, we’ll send you regular reminders to ensure your information is up to date. With our optional Records Manager add-on, you can keep track of your company’s ownership information in a centralized system. 

We also take care of any report corrections that might be necessary. If you notice any inaccuracies, we’ll help you resolve the issue within the required timeframe to avoid penalties. You can use our BOI Reporting Service for up to four initial, corrected, and/or updated reports per year.

As daunting as it may seem, BOI reporting doesn’t need to rob you of valuable time and energy. Contact Harbor Compliance today to put your BOI reporting obligations on autopilot.