Part 1: Do Business Owners Need Professional Help With BOI Reporting?

Posted on August 2, 2024December 2, 2024 by Johnna Wahrman

Is Help With BOI Reporting Really Needed?

By now, most readers have likely heard of the Corporate Transparency Act (CTA), which became effective in January.

This legislation requires businesses to report their beneficial ownership information (BOI) to the government. However, there are a few critical considerations to keep in mind to ensure compliance and avoid penalties.

In March 2024, a district court ruling declared the CTA unconstitutional. This judgement affected only a minority of entities – those associated with the plaintiff of the case, the National Small Business Association (NSBA).

With approximately 65,000 members impacted, this is a small fraction compared to the estimated 32.6 million entities that still need to report by the end of 2024.

For the vast majority of businesses, CTA compliance remains a pressing issue, highlighting the necessity for professional help with BOI reporting.

Complexity and Confusion in Regulations

The CTA’s regulations are intricate and may be perceived as vague, leading to potential under-reporting or over-reporting by business owners. The definitions within the regulations are not always clear-cut.

For instance, identifying individuals with “substantial control” over an entity, such as determining who qualifies as a senior officer involves more than just looking at titles. It’s about understanding the roles and responsibilities at a company.

A person with the title “Manager” might fall under the definition of a senior officer if their role and responsibilities align with the criteria set forth in the CTA.

A few other examples that call for the input of a professional include determining if an entity qualifies for an exemption, identifying the company applicants that need to be reported (if applicable), and considering the need for beneficial owners to obtain FinCEN Identifiers.

Determining 25% ownership rules can also get complex with tiered entity structures. Such complexities make it easy for business owners to misinterpret the requirements, resulting in either incomplete or excessive reporting. This is where professionals can step in to provide clarity and ensure accurate reporting.

Professionals are well-versed in interpreting these definitions and can guide business owners through the nuances, ensuring compliance without overburdening them.

Ongoing Compliance and Updates

The initial filing is just the beginning of the compliance journey. Business owners must also be aware of the requirement to file updates within 30 days of any change in previously filed information.

This means that any changes in ownership, substantial control, or exempt status require another report be filed. If a previously reported company becomes exempt, such as by becoming inactive, it must submit a “newly exempt entity” BOI Report.

The ongoing nature of these compliance requirements demands a level of vigilance and understanding that many business owners may not possess.

Professionals can help monitor these changes and ensure timely updates, avoiding potential penalties. They can use software to organize information and report updates efficiently.

They can also educate business owners on what changes require updates to be filed. This proactive approach not only ensures compliance but also reduces the risk of last-minute scrambles to meet reporting deadlines.

Lack of Awareness and Proactive Communication

Despite the significance of the CTA, many business owners are still unaware of its existence and the obligations it imposes. This lack of awareness can lead to non-compliance, which carries significant penalties.

Professionals play a non-negotiable role in bridging this knowledge gap. They can get a jump on communicating with their clients, ensuring they are aware of the CTA requirements.

Strategic Approaches to Client Support

Professionals have several options for assisting clients with CTA compliance, depending on the level of engagement and support the client needs:

A comprehensive, white glove approach involves handling the entire CTA process for the client, from the initial filing to managing updates. This engagement is ideal for clients who prefer a hands-off approach and want assurance that their compliance needs are fully managed.
Professionals can guide clients through the initial filing, after which the clients will manage their own compliance going forward. This approach offers a balance between professional guidance and client independence.
For those who prefer not to engage directly with CTA compliance, educating clients about their obligations and referring them to trusted resources for compliance can be an effective strategy. Professionals can even build a network of trusted compliance specialists to whom they can refer clients.

How Will You Help With BOI Reporting?

The CTA compliance landscape is complex, and the need for professional assistance is clear. Business owners face a myriad of challenges, from understanding vague definitions to managing ongoing updates.

Whether offering assistance through full-service management, advisory roles, or educational support, professionals play a critical role in helping business owners achieve and maintain compliance. As the deadline approaches and ongoing updates are required, now is the time to determine how you will assist your clients in achieving and maintaining compliance.

This proactive approach not only ensures compliance but also fosters trust and long-term relationships with clients, positioning you as a valuable partner in their business success.

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Certifying BOI Reports: Who is Responsible?

Posted on April 11, 2024December 9, 2024 by Johnna Wahrman

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Who is Responsible for Certifying BOI Reports?

The process of filing a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) is a crucial aspect of ensuring financial transparency and combating illicit activities such as money laundering and terrorist financing. A particularly significant component of this process is the certification of the BOI report. This certification mandates that the individual filing the report on behalf of a reporting company must affirm that they are authorized to do so and that the information within the report is true, correct, and complete. Given the serious civil and criminal penalties associated with non-compliance and fraudulent filings, this requirement places a substantial burden of responsibility on the certifier. According to the final regulations provided by FinCEN: “While an individual may file a report on behalf of a reporting company, the reporting company is ultimately responsible for the filing. The same is true of the certification. The reporting company will be required to make the certification, and any individual who files the report as an agent of the reporting company will certify on the reporting company’s behalf.” This distinction is crucial and offers a semblance of reassurance to professionals who are hesitant to involve themselves in the certification process due to the potential legal ramifications. However, the apprehension among legal professionals, CPAs, and advisors about becoming the filer for their clients remains palpable. The liability associated with certifying a report as true, correct, and complete is significant. In light of these concerns, professionals may opt to take a more advisory role, guiding their clients through the preparation of the report but ultimately having the client review and submit it themselves. This approach not only mitigates the professional’s legal exposure but also ensures that the reporting company maintains ultimate responsibility for the certification and submission of the report. Secure Compliance software can facilitate this advisory approach by allowing professionals to collect necessary signatures from their clients and ensuring that the owner certifies the filing. By using such software, professionals can provide a range of services—from premium, white-glove assistance to more basic guidance—without appearing as the preparer on the submitted report. Beyond the filing process, professionals have a duty to educate their clients on compliance matters, including the triggers for updating the BOI report. Changes such as the hiring of new officers could necessitate an update, and professionals must decide whether to directly manage these updates for their clients or to empower them with the resources to handle changes independently. This education component is critical for ensuring that clients can confidently certify their filings, understanding the obligations and potential repercussions involved.

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Table of Contents

How Do Legal Professionals Approach the CTA?

Posted on April 9, 2024December 9, 2024 by Johnna Wahrman

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The Corporate Transparency Act (CTA) represents a significant shift in the regulatory landscape for businesses in the United States, requiring them to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This new mandate has led legal professionals, CPAs, and advisors to adopt varied approaches to assist their clients in complying with the regulations. In light of this, the question stands: how are legal professionals approaching the CTA? Here’s a closer look at how they are navigating the CTA compliance terrain.

Legal Professionals Approach the CTA: White-Glove Service

One way legal professionals approach the CTA is by taking a comprehensive approach, offering white-glove service to clients. This includes not just initial filings but also managing subsequent updates to the BOI as required. While this service model demands significant resources, it also opens up a new revenue stream for firms willing to invest in it. The primary challenge here is not the initial filing but the ongoing management of updates, especially given the tight 30-day deadline for reporting any changes. Firms offering this service must establish robust mechanisms for smooth communication and operation, ensuring changes are filed promptly to avoid penalties. Despite the resource intensity, many clients expect this level of service, making it a valuable offering for firms that can deliver.

Legal Professionals Approach the CTA: Referral

In contrast, some professionals opt out of the direct filing process, instead referring clients to trusted resources or platforms. This approach allows firms to navigate the complexities of CTA compliance without overextending their resources. Clients with simpler ownership structures may find it easy to manage their filings independently with the right guidance, while those with more complex arrangements might need specialized services. Referrals can lead clients to other firms offering white-glove services or to platforms equipped to help business owners with their filing process.

Legal Professionals Approach the CTA: Initial Filing Support

A middle-ground approach involves legal professionals advising clients on the CTA and assisting with the initial BOI report filing but not engaging in the ongoing maintenance of updates. This model caters to clients who are capable of handling minor updates on their own with some initial guidance. It strikes a balance, providing essential support without the commitment to continuous update management, making it an attractive option for both professionals and clients who prefer a less hands-on approach while still receiving the initial guidance needed to file correctly.

The Role of Technology Solutions

Secure Compliance steps in to bridge the gap with solutions designed to manage all aspects of BOI reporting. Our services, including SecurePRO and SecureFILE, are designed for flexibility, allowing them to function both independently and in conjunction, to meet the varied demands of clients.

The best part is, you don’t have to pick one platform. SecurePRO offers features such as user management tools, secure data collection, and e-signatures provide essential tools for professionals.

SecureFILE offers step-by-step guidance through an intelligent wizards that make compliance accessible for all business owners, regardless of their familiarity with the CTA.

Each of these approaches has its merits and challenges.

Offering white-glove service can significantly enhance client satisfaction and loyalty but requires an investment in resources.
Referring clients to external resources can be a practical solution for firms unable to commit these resources but may result in missed opportunities for additional revenue or building the client relationship.
Providing initial filing support offers a compromise, helping clients navigate the initial compliance hurdle while empowering them to take charge of subsequent updates.

As legal professionals and advisors continue to navigate the CTA landscape, the choice of strategy will largely depend on their firm’s capabilities, resources, and client expectations.

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Table of Contents

A Guide to BOI Reporting

Posted on April 2, 2024December 9, 2024 by Johnna Wahrman

Guide to BOI Reporting: Introduction

Navigating the complexities of the Corporate Transparency Act (CTA) can be daunting for business owners, especially those at the helm of small to medium-sized companies.

The CTA’s reporting requirements are designed to improve transparency and combat financial crimes by requiring certain businesses to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

This guide to BOI reporting will walk you through the steps necessary to comply with these requirements.

1. Determine If Your Company Needs to File a Report

The first step is straightforward: assess whether your business is subject to the CTA’s reporting requirements. If your company is an LLC, corporation, limited partnership, or similar entity created by filing a document with a secretary of state or a similar tribal body, then you are required to file a report. Most formal business structures will fall within this mandate.

2. Determine Your Due Date

The timeline for filing depends on when your entity was formed:

Prior to January 1, 2024: Your company’s due date is January 1, 2025.
Formed in 2024: Your company has 90 days from the filing of your formation documents.
Created in 2025 or beyond: Your company must file within 30 days of formation.

Marking these deadlines on your calendar is recommended to ensure timely compliance.

3. Identify the Company’s Beneficial Owners

Identifying beneficial owners is a two-pronged task. Owners are individuals with at least a 25% “ownership interest” or those who have “substantial control” over the company. The latter may require a more nuanced approach, considering factors like senior officer status, authority over key decisions, or the power to appoint or remove significant positions. If in doubt about someone’s status, consulting with an expert can provide clarity.

4. Determine the Company Applicants

Only for entities formed on or after January 1, 2024, identifying the company applicants is necessary. These are individuals who filed the entities formation documents, whether they were directly filed or had a significant role in directing or overseeing the process. Scenarios can vary, from an attorney filing documents solo to a team effort involving paralegals or corporate service providers. If your entity was formed through less straightforward means, seeking expert advice is advisable.

5. Gather Required Information

Before filing, you’ll need to collect specific information about each beneficial owner and company applicant, including:

First and last name
Date of birth
Residential address
An identification number (from a driver’s license, state/local/tribal ID, or passport)
An image of the reported ID

For those wary of handling sensitive data, encouraging individuals to obtain a FinCEN Identifier or employing secure collection services such as Secure Compliance can ease the process.

6. File the Initial Report

With all necessary information at hand, filing the initial report marks a significant step towards compliance. This process, while detailed, is made easier by careful preparation and organization in the preceding steps.

7. File Updated Reports as Needed

Changes to your company or its beneficial owners must be reported within 30 days. This includes updates to personal information, as well as structural changes that affect those who qualify as beneficial owners. Unlike company applicants, beneficial owners are required to keep their information current, a task simplified for those with a FinCEN Identifier.

Are You Prepared to File?

Complying with the CTA’s reporting requirements is a critical obligation for many business owners. By following the steps outlined in this guide, you can ensure your business meets these obligations efficiently and accurately. Remember, when in doubt, consulting with experts who specialize in regulatory compliance can provide valuable guidance and peace of mind.

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What is Substantial Control?

Posted on March 21, 2024December 9, 2024 by Johnna Wahrman

What is Substantial Control, and Why Does it Matter?

The Corporate Transparency Act (CTA) introduces the reporting of beneficial owners of majority U.S. and foreign entities to the Financial Crimes Enforcement Network (FinCEN). Traditionally, the term “beneficial owner” has been closely associated with individuals holding a financial interest in a company, as delineated under the Bank Secrecy Act. However, the CTA broadens this definition to encompass individuals with “substantial control” over a company. This part of the definition may call for professionals and their clients to have a second thought about who to report as beneficial owners on their entities’ Beneficial Ownership Information (BOI) reports. Below, we will seek to answer the question: what is substantial control?

Understanding “Substantial Control”

The CTA defines three primary avenues through which an individual can exert substantial control over a reporting company, directly or indirectly, thereby qualifying as a beneficial owner:

Senior Officer Role: This category includes individuals serving in high-ranking positions such as President, CEO, COO, CFO, or those undertaking similar responsibilities. It’s crucial to recognize that the essence of substantial control reaches beyond formal titles, focusing instead on the functions and duties performed. Companies lacking positions with traditional corporate titles must evaluate the roles of their members to identify those fulfilling equivalent senior management responsibilities.
Authority over Appointments: Individuals with the power to appoint or dismiss senior officers or board of directors embody another facet of substantial control. This authority signifies a significant influence over the company’s strategic direction and operational dynamics, making it a critical factor in the identification of beneficial owners.
Decision-Making Power: The capacity to make or influence critical business decisions is a definitive marker of substantial control. FinCEN categorizes these critical decisions into three broad areas:
- Business Decisions: Including but not limited to the company’s strategic focus, venture creation or termination, and significant operational changes.
- Financial Decisions: Encompassing major asset transactions, investments, budget approvals, and financial structuring.
- Structural Decisions: Relating to corporate restructuring, mergers, and amendments to governance documents.

There is also a fourth category that FinCEN specifies in the final regulations that is not necessarily defined, as it is the ‘catch-all.’ Essentially, the last avenue is “any other form of substantial control over the reporting company.” FinCEN explains that control exercised in new and unique ways can still be substantial. For instance, within the realm of flexible corporate frameworks, there might be distinct signs of control that do not fit neatly into the previously mentioned categories. This broad category introduces the potential for diverse interpretations as legal experts and certified public accountants (CPAs) guide their clients. In such cases, some advisors might lean towards recommending the reporting of individuals even in situations where it’s unclear if they align precisely with any of FinCEN’s provided examples. An often-overlooked aspect of substantial control involves individuals holding a Power of Attorney (POA) that grants them the authority to make decisions on behalf of the company or its owners. Such individuals may not hold any formal title or position within the company but can exert control equivalent to that of a beneficial owner through their decision-making capabilities.

Implications for Reporting Companies

Determining individuals with ‘beneficial ownership’ under the CTA requires a comprehensive review of a company’s governance structure and decision-making processes. Business owners must perform a diligent assessment to identify individuals who, through their roles, authority, or decision-making power, exert substantial control over the company.

Are You Prepared to File?

To download our Substantial Control Organizer to aid in the collection of beneficial owner information from your clients, click here: Substantial Control Organizer.

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Tiered Ownership Structures in BOI Reporting

Posted on March 19, 2024December 9, 2024 by Johnna Wahrman

Tiered Ownership Structures in BOI Reporting: An Introduction

Did you know that strategically filing Beneficial Ownership Information Reports (BOIRs) in a certain sequence can save time and reduce the need for redundant inputs? In situations where entities are organized across multiple levels of ownership, it becomes crucial to carefully strategize. Even though different professionals might manage these entities, a comprehensive approach to understanding the ownership structures can make a difference. If all involved professionals consider every beneficial owner holding at least a 25% ownership interest and work together, the reporting process can be made more streamlined and effective.

Tiered Ownership Structures in BOI Reporting: A Helpful Tool

One tool that can be harnessed by professionals to save time, is the final rule issued on November 8, 2023 that specifies when and how entities required to file a BOIR may use the FinCEN Identifiers (FinCEN IDs) of certain related entities in the beneficial owners section of their report, rather than details about the individuals. The criteria that need to be met in order to be able to utilize this includes:

The other entity has obtained a FinCEN identifier and provided that FinCEN identifier to the reporting company;
An individual is or may be a beneficial owner of the reporting company by virtue of an interest in the reporting company that the individual holds through an ownership interest in the other entity; and
The beneficial owners of the other entity and of the reporting company are the same individuals.

It’s important to emphasize here that upon analyzing entity tiers this allowance is accepted in relation to ownership interest and does not require that beneficial owners with substantial control be the same across the tiers. Watch our recent video for further discussion about tiered ownership structures in BOI reporting.

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