Mark Zuckerberg in 2004 was known for telling his Facebook developers, “move fast and break things.” The expression sounds reckless, but it was meant to encourage his team to innovate and not be risk averse. Entrepreneurs are known for their propensity to innovate and seek out risk. However, this often comes at the cost of side-stepping traditional protocols or not following the rules of the game.
Some rules come with severe consequences and demand extra caution. One example of this is a new mandate by the U.S. Department of Treasury. Entrepreneurs and small business owners need to know about the Corporate Transparency (CTA) and Beneficial Ownership Information Reporting (BOIR). This new legal requirement impacts over 30 million LLCs and corporations formed in the U.S. and comes with serious penalties for noncompliance.
The CTA requires companies to submit BOI Reports to the Financial Crimes Enforcement Network (FinCEN) before specific deadlines. To their credit, some small businesses are aware of the Corporate Transparency Act and have begun to educate themselves on the requirements. The next set of questions they have to ask is how they can go about completing the Beneficial Ownership Information Report and submitting it properly to FinCEN.
Business owners can file BOI Reports themselves for free using FinCEN’s E-Filing System. However, it can be tricky to complete the report on your own without making any mistakes. Given the heavy penalties, which include fines and jail time, making small mistakes in your BOI Report can be disastrous.
In this article, we cover common mistakes you need to avoid making when completing your company’s Beneficial Ownership Information Report. Additionally, we tell you about some solutions to help you file your report properly with FinCEN.
What Are BOI Reports and BOIR?
Beneficial Ownership Information Reports, or “BOI Reports”, are a federal legal requirement that U.S. businesses need to complete. The Corporate Transparency Act (CTA) requires companies to submit BOI Reports to the Financial Crimes Enforcement Network (FinCEN) before specific deadlines.
BOI Reports contain information about a company and all of its “beneficial owners”. Per FinCEN’s guidelines, beneficial owners include anyone who owns at least 25% of the company, or has “substantial control” over the business.
FinCEN labels businesses required to submit BOI Reports as “reporting companies”. Reporting companies include limited liability companies (LLCs), corporations, limited partnerships (LPs), and any type of entity formed by filing documents with a state government.
Reporting companies must submit BOI Reports to FinCEN before specific deadlines to be considered “compliant”. The deadlines for BOI Reports vary based on the company’s formation date in the U.S.
New companies formed in 2024 have 90 days after the company’s formation date to file a BOI Report. Existing companies formed before January 1, 2024 only have until the end of 2024 to file their BOI Reports.
Existing companies that fail to submit initial BOI Reports before the deadline will begin to be charged with daily fines of $591 starting on January 1, 2025.
Top BOI Report Self-Filing Mistakes to Avoid
It is easy to make mistakes when submitting a BOI Report yourself through FinCEN’s E-Filing System. Your company’s BOI Report needs to be true, correct and complete. The law does not provide any “good faith” safe harbor provisions, and even honest mistakes that are “willful” can result in civil fines of $591 per day up to $251,000 per year plus criminal penalties of 2 years in jail and $10,000 civil fines. In the case where other financial crimes are proven, the criminal fine increases to a maximum of $100,000 per violation and 10 years in jail per violation.
Avoid these common mistakes when submitting your company’s BOI Report on your own:
#1) Not Learning the Requirements Beforehand
FinCEN’s E-Filing system is just that, a filing system. FinCEN’s reporting form does not explain the reporting requirements or provide any guidance while you are filling it out.
Some business owners may dive into the BOI Report without learning about the reporting requirements first. However, this could be an expensive mistake. You need to know exactly what needs to be reported before starting the E-Filing process.
Learning all of the BOI Reporting requirements can take time. FinCEN offers a 56 page Small Entity Compliance Guide that is meant to help small business owners understand the requirements and answer their questions. You may miss important details in your BOI Report if you don’t learn all of the requirements ahead of time. FinCEN has also released over 100 frequently asked questions on their website.
Lawyers and CPAs still have many unanswered questions after studying the regulations and having discussions with FinCEN’s policy makers. Simply put, trying to tackle the Beneficial Ownership Information Report without proper guidance is not a recipe for success.
#2) Not Identifying Every Possible Beneficial Owners
“Beneficial owners” include more than just a company’s direct owners. Anyone who exercises “substantial control” over a reporting company is defined as a beneficial owner. This can be true even if they do not have any ownership in the company.
People with substantial control include all of a company’s senior officers, the board of directors, and anyone involved in making important decisions for the business.
#3) Not Checking For Mistakes
You need to make sure that your company’s BOI Report is true, correct and complete. That means that you can’t have any typos or incorrect information in your report. A wrong Employer Identification Number, wrong passport number, leaving off a middle name or suffix, or missing a comma in a company name would be noncompliant. Some people even mistakenly upload selfies or professional head-shots instead of images of approved IDs. When you make these mistakes, FinCEN just accepts what is provided without verification and displays “Filing Successful!” on the confirmation page.
FinCEN’s BOI E-Filing system does not provide any kind of spell checking or address verification features. Be sure to double check all of the information you enter into the report before hitting submit.
#4) Think Twice Before Listing Your Registered Agent’s Address
FinCEN requires companies to report a principal business address located in the U.S. This address can only be your Registered Agent’s address if your company has no other address in the United States.
Companies that are not headquartered in the U.S. need to report an address where the company’s U.S. based operations are primarily located.
#5) Reporting A P.O. Box Address
You need to list physical addresses for the company and each beneficial owner in the BOI Report. These need to be full street addresses. You cannot list a P.O. Box as an address in your company’s BOI Report.
#6) Not Reporting the Correct Company Applicant
New companies formed in 2024 and thereafter need to report their company applicants. The company applicants are the individuals who are most responsible for having the company formed.
A reporting company has two company applicants:
Company Applicant 1 is the person who submitted the company’s formation documents to the Secretary of State’s office. Think of this company applicant as being the “last mile” in the formation process. If you used an incorporation service to form your company for you, this company applicant will be the employee who filed the paperwork with the state.
Company Applicant 2 is the person who was most responsible for ordering the company to be formed. Think of this company applicant as being the “first mile” in the company formation process.
It’s easy to get confused about who the company applicants are when completing your BOI Report. If you filed your company formation documents yourself, then you can report yourself as the only company applicant.
#7) Not Reporting All Business Names
You need to report any alternate names your company uses for business other than its official legal name. These include publicly filed trade names, like DBAs (“doing business as” trade names). However, it also includes any names that are not officially filed.
Determining alternate business names that need to be reported can be done with the help of a professional who understands the regulations. For example, website URLs could be considered trade names and should be included in a company’s BOI Report. Many businesses use shortened names on signs or for marketing purposes. These abbreviated names should also be reported.
Consider listing your entity name without the corporate ending (LLC, Inc, etc.). Businesses often leave off the entity suffix on promotional materials or when conducting business. You may also consider including brand names of specific products or services in the BOI Report.
#8) Forgetting To Keep Copies Of Reports
FinCEN’s E-Filing system generates a “transcript” after a report is submitted. This serves as evidence of the report being submitted and what was in the report.
Business owners should keep records of all the information submitted in their company’s BOI Report, including images of the ID documents that they upload for each beneficial owner.
Keeping records allows you to check the information for accuracy and file corrected reports if needed. Additionally, keeping records of BOI Reports can help you keep track of changes that require filing an Updated BOI Report.
#9) Not Tracking Changes And Reporting Updates
Reporting companies need to submit updated BOI Reports to FinCEN any time that a piece of information provided in a previous report changes.
The best example of a change in information requiring an updated report is when a beneficial owner changes their home address, or their ID document expires. Of course, any change in the company’s ownership or management requires an Updated BOI Report to be filed with FinCEN within 30 calendar days.
How Long Do BOI Reports Take?
FinCEN initially estimated that BOI Reports could take anywhere from 90 minutes to 11 hours to complete using their BOI E-Filing system. FinCEN has since reduced that estimate downward to as little as 20 minutes, however they do not specify whether 20 minutes is enough time to submit a report that meets the standard of being true, correct and complete.
What Are The Penalties For Violating The CTA?
There are civil and criminal penalties involved for violating the Corporate Transparency Act and the Beneficial Ownership Information Reporting requirements.
FinCEN can charge companies with civil penalties for simple reporting violations. These penalties include civil fines of $591 per day. Not filing the report on time or including mistakes in the report are examples of violations that can lead to civil fines. Additionally, FinCEN can fine a reporting company for failing to submit an updated report when information changes. The fines are imposed per reporting company and per willful violation. So these can add up.
FinCEN can pursue criminal penalties for people who willfully fail to comply with the reporting requirements. Criminal penalties under the CTA include fines up to $10,000 and up to 2 years in federal prison. Examples of willful noncompliance include intentionally reporting false information, or refusing to file a BOI Report all together. Couple the willful CTA violation with another proven financial crime and the maximum criminal penalties per violation increase to $100,000 and 10 years in jail.
Who Do Penalties Apply To?
FinCEN can charge anyone involved in a company’s senior leadership with civil and criminal penalties for reporting violations. Beneficial owners and senior officers can be personally charged with fines and jail time if the company fails to file a complete report by the deadline.
Additionally, anyone who prevents a company from submitting their BOI Report on time can be held responsible and charged with fines, even if they’re not an owner or control party.
How BOIR Filing Services Can Help
Business owners can ensure that they file compliant reports by seeking help from a BOIR filing service. CTAboi’s BOI Reporting Tool is a user-friendly alternative to FinCEN’s BOIR E-Filing system. The Reporting Tool offers a streamlined experience, helping guide users through the requirements while completing the report.
The service then submits your BOI Report directly to FinCEN and sends to you the documentation that you need to keep track of your report. After filing your report, certain reputable services can help you manage your company’s beneficial ownership information making it easier to keep track of changes and update reports.