Beneficial ownership information reporting requirements: What startups need to know

In a move to increase corporate transparency and combat financial crimes, the US Financial Crimes and Enforcement Network (FinCEN) now requires most US businesses to disclose information about their beneficial owners. This new regulation, part of the Corporate Transparency Act passed in 2021, is set to impact many tech startups and established companies alike.

Starting this year, founders and owners operating their startups as limited liability companies (LLCs) or corporations must submit ownership statements to FinCEN. This is generally a one-time filing unless there are changes in ownership. Non-compliance could result in penalties of up to $10,000 and two years in prison.

According to FinCEN, nearly all companies, except sole proprietorships not registered with a Secretary of State, must report details about the individuals who ultimately own or control them. FinCEN began accepting these reports on January 1, 2024.

For businesses established before this year, the deadline to file is January 1, 2025. Newly formed businesses have a shorter window to comply. As of January 1, 2024, most US startups are required to file a Beneficial Ownership Information (BOI) Report with FinCEN.

Who Qualifies as a Beneficial Owner?

A beneficial owner is defined as an individual who ultimately owns or controls a company, either through direct ownership or significant influence. The aim is to boost transparency and prevent illegal activities facilitated by anonymous companies.

FinCEN identifies beneficial owners based on two criteria:

• Individuals who own at least 25% of the ownership interests of the company, or
• Individuals who exercise “substantial control” over the company

“Substantial control” is broadly interpreted to include senior officers and key decision-makers.

The goal of this regulation is to increase transparency and prevent the misuse of anonymous companies for illegal activities. Each beneficial owner must provide a copy of an official document, such as a passport or state driver’s license, as part of the reporting process.

FinCEN ID: Streamlining the Process

For individuals who are beneficial owners of multiple companies, FinCEN offers the option to apply for a FinCEN ID. This ID simplifies the reporting process by allowing these individuals to provide their FinCEN ID to each company, instead of repeatedly submitting personal information.

Key Deadlines for Beneficial Ownership Information Reporting

Here’s what you need to know about the deadlines for submitting your startup’s beneficial ownership information, based on FinCEN’s guidelines:

Startups and businesses created or registered before January 1, 2024: These businesses must file their Beneficial Ownership Information (BOI) Report by January 1, 2025.

Startups and businesses created or registered in 2024: These companies have 90 calendar days from the time they receive actual or public notice of their creation or registration to file their BOI Report.

Startups and businesses created or registered on or after January 1, 2025: These companies must file their BOI Report within 30 calendar days of receiving actual or public notice of their creation or registration.