The requirements for Beneficial Ownership Information (BOI) reporting primarily stem from federal legislation, specifically the Corporate Transparency Act (CTA), which mandates reporting to the Financial Crimes Enforcement Network (FinCEN). However, states and local governments may have additional regulations or reporting requirements that businesses must comply with. Here’s how BOI reporting requirements can differ depending on state or local government.

Federal Requirements – the Corporate Transparency Act (CTA)

This mandatory reporting applies to covered entities, which generally include corporations, limited liability companies (LLCs), and similar entities formed under state law. Business owners must report individuals who directly or indirectly own or control at least 25% of the ownership interests or exercise substantial control over the entity.

Businesses must submit initial BOI reports to FinCEN and update them within 30 days of any changes. However, certain entities may be exempt from reporting, such as publicly traded companies, certain regulated entities (e.g., financial institutions), and entities meeting specific criteria.

State and Local Variations

1. Additional Reporting Requirements
   Some states may have their own BOI reporting requirements that supplement federal regulations. These requirements could include additional disclosures or reporting to state agencies.
2. Different Beneficial Ownership Definitions
   States may define beneficial ownership differently or require reporting on a broader range of entities than those covered under federal law.
3. Registration and Licensing
   States may require businesses to register or obtain licenses that could include disclosure of beneficial ownership information as part of the registration process.
4. Compliance and Enforcement
   Enforcement mechanisms and penalties for non-compliance may vary between federal and state levels. Businesses must comply with both federal and state requirements to avoid penalties and ensure regulatory compliance.

Example: Delaware vs. Federal Requirements

• Delaware: As a popular state for business incorporation, Delaware has its own reporting requirements, including an annual franchise tax report that includes information on the corporation’s authorized shares and par value, which indirectly involves beneficial ownership details. Delaware has been under scrutiny for its corporate transparency laws, which critics argue facilitate tax avoidance and other abuses.
• Federal Requirements: Under the CTA, businesses must report beneficial ownership information to FinCEN, including details on individuals who own or control the business. This requirement aims to enhance transparency and combat illicit financial activities like money laundering and terrorist financing.

While federal law sets the baseline for BOI reporting requirements through the CTA and reporting to FinCEN, businesses must also consider any additional requirements imposed by their state or local governments. Staying informed about these requirements and consulting with legal advisors can help ensure compliance with all applicable regulations.

If you need some help navigating these complex regulations, Propel is here with an entire team of business compliance specialists. Simply say hello and we’ll help you file your BOI report and maintain compliance with both state and federal regulations.