Clarifying the Beneficial Ownership Definition and Requirements

Beneficial ownership got particular attention from the general public when the Corporate Transparency Act (CTA) came into effect on January 1, 2024. The CTA requires all reporting companies to submit information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

To help you meet this requirement and ensure your organization operates in accordance with the law, this guide clarifies the beneficial ownership definition and dives into all the specifics you should know. You’ll also learn what Harbor Compliance is and how we help companies report beneficial ownership information (BOI) timely and accurately.

Who Is a Beneficial Owner of a Company?

As defined by FinCEN’s final rule, a beneficial owner is an individual who either owns at least 25% of a company’s ownership interest or exercises substantial control over the company.

The first criterion is defined precisely enough to make the identification of beneficial owners easy. 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.

As for substantial control, the CTA outlines four specific types of individuals who have it:

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

The CTA requires companies to list all beneficial owners and provide their identifying information to FinCEN. This is done to prevent illicit activities through shell companies or legitimate businesses.

Exceptions From the Definition of a Beneficial Owner

In some cases, you may not need to include a beneficial owner’s information in your BOI report. The CTA makes five exceptions from the beneficial owner definition:

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

Note that there are specific criteria a beneficial owner must meet to qualify for an exemption. For example, a person is only considered an employee in the BOI reporting context if they meet the following requirements:

• They’re subject to the control and will of the employer, who has the power to discharge them.
• Their economic benefits or substantial control over the company are derived only from their employee status.
• They don’t serve as the company’s senior officer.

It’s also worth mentioning that special rules might apply to some exceptions. For example, the fact that you don’t need to report a minor’s information doesn’t mean you can completely exclude them from the report.

Instead, you must include the identifying information of a minor’s parent or legal guardian in the report. When the minor reaches legal age, you must submit an updated BOI report that includes their information.

You can find all the necessary details about beneficial ownership exceptions alongside qualification criteria and special rules in FinCEN’s Small Entity Compliance Guide.

Company Applicants—An Often Overlooked Aspect of BOI Reporting

As beneficial owners are at the center of the CTA’s requirements, it’s easy to forget about another category of individuals you might need to include in your report—company applicants. If your company was formed on or after January 1, 2024, you must submit their information as well.

The CTA differentiates between two types of company applicants:

1. Individuals who directly filed the document that resulted in the reporting company’s formation
2. Individuals who were responsible for directing or controlling the filing action

If only one person was involved in the formation process, they’re considered the direct filer and the only company applicant who must be included in the report. This means the second category is only applicable if two or more people registered the company.

Beneficial owners’ and company applicants’ information must be kept current with FinCEN. After sending the initial report, you must submit updates no later than 30 days after any information has changed. This is an ongoing responsibility that might be quite cumbersome to company owners, who already have a lot on their minds.

The good news is that you can simplify the reporting process and minimize the effort involved by partnering with Harbor Compliance.

When Do You Need To File a BOI Report?

Once you know who your entity’s beneficial owners are, you only have until year-end to submit your BOI report. The last thing you want is to underestimate how lengthy the process can be, only to end up missing the deadline and paying hefty CTA fines.

According to FinCEN, it typically takes companies two to four months to just gather their ownership information. This, coupled with the additional time required to organize data and file a BOI report, can lead to you failing to submit the report on time—and FinCEN has stated repeatedly that they will not extend the BOI reporting deadline for any reason.

Even if you manage to consolidate all information and prepare to submit your report by the end of the year, don’t drag things out to the last minute. Doing so will put you at two major risks:

1. Website crashes—There’s a good chance the government portal will experience issues and crashes with literally thousands of companies attempting to submit their BOI reports at the last minute.
2. Hefty penalties—BOI reporting is a legal obligation under the CTA, so missing the deadline incurs fines starting from $591/day (plus inflation).

Instead of undertaking this mounting workload yourself, delegate this task to a professional service provider like Harbor Compliance and have your BOI report submitted within 48 hours of sending the documents.

Take Action To File Your BOI Report and Avoid Accumulating Penalties

Entities often file incorrect BOI reports during last-minute rushes. However, with Harbor Compliance, you’re guaranteed to submit error-free BOI reports to FinCEN—and in record time.

Order the Harbor Compliance BOI Reporting Service Here

BOI Reporting Service by Harbor Compliance

If you want to eliminate guesswork and stress from BOI reporting, Harbor Compliance has a solution. Our comprehensive BOI Reporting Service takes care of the entire reporting process. You can rest assured that we’ll submit the information you provide timely and accurately up to four times per year, freeing up your time to let you focus on impactful work.

After we gather the necessary information from you, we submit it to FinCEN and provide ongoing support to keep your company’s BOI current—you don’t need to file anything on your own.

The service is available to all reporting companies, from small businesses to multinational companies. It’s also an excellent option for nonprofits that aren’t 501(c) exempt because we can help clarify any reporting details that might be confusing.

Advantages of Partnering With Harbor Compliance

FinCEN estimates that it can take up to three hours to compile and submit your report, so it can be quite tedious and time-consuming. If you opt for our BOI Reporting Service, you won’t need to waste valuable time submitting your report.

More importantly, we’ll send you periodic automated reminders to check whether any of your company’s BOI needs to be updated. There are numerous situations that might call for an update, such as:

• Your beneficial ownership structure has changed.
• There’s been a change to a beneficial owner’s information (e.g., their address).
• Some of the documents provided as proof of identity have expired.

With Harbor Compliance, you don’t need to worry about forgetting to update FinCEN on any of the above changes. If any of them occur, we’ll submit an updated report based on the provided information.

Finally, we make it easy to keep track of your company’s leadership and ownership information through the optional Records Manager add-on. It centralizes all the necessary information to give you a clear overview and make updates effortless.

How To Order the BOI Reporting Service

You can get started with our BOI Reporting Service in no more than a few minutes—all you need to do is complete the signup wizard. The process only takes three steps:

1. Choose from three options based on your business specifics:
1. Single business
2. Nonprofit that is not 501(c) exempt
3. Multiple entities
2. Enter your contact information and company details
3. Check out

After you’ve purchased the service, we’ll gather all the relevant information and submit your initial BOI report. You’ll get a confirmation that the report has been filed alongside the aforementioned ongoing support.

Other Ways We Help You Meet Your Regulatory Obligations

BOI reporting is only one of many tasks we can complete on your behalf. The following table outlines some of the most popular services from our extensive portfolio:

BOI Reporting FAQs

Below, we’ll answer some of the most commonly asked questions about BOI reporting. You can learn more on FinCEN’s FAQ page or visit our extensive Information Center to find resources on numerous additional regulatory matters.

Simplify BOI Reporting With Harbor Compliance

As daunting as it may seem, BOI reporting doesn’t need to rob you of valuable time and energy. Order our BOI Reporting Service, and we’ll take care of everything to ensure your company meets its obligations.

To make sure you haven’t missed any other important requirements, get a free Harbor Compliance Score™. If you need any help ensuring your organization operates in accordance with state and federal laws, inquire about our additional services for a custom solution.

We also offer a comprehensive compliance platform that makes it easy to stay on top of all the necessary regulations. Schedule a demonstration to see how it can help.