Understanding How Changes in Beneficial Ownership Affect Reporting Requirements

Adhering to the original guidelines of the Corporate Transparency Act (CTA), enacted on January 1, 2024, involves more than just filing initial reports on beneficial owners with the government. Assuming reporting requirements are reinstated, as time progresses, entities must also file updated or corrected reports to the Financial Crimes Enforcement Network (FinCEN) whenever there is a change in beneficial ownership.

These changes can arise from a wide range of events, such as alterations in the company's name and personal addresses of beneficial owners. With numerous potential triggers for updates in beneficial ownership information (BOI), entities must stay vigilant to ensure their reports are accurate and up to date.

This article will outline various events that necessitate corrections or changes in beneficial ownership reports and discuss the steps to take when your entity's BOI needs to be updated. Additionally, we'll explore how Harbor Compliance can assist you in filing initial, corrected, and updated BOI reports.

What Information You Need To Report to FinCEN

The CTA was introduced to tackle the misuse of shell companies in financial crimes, such as money laundering and terrorist financing. Under the CTA, reporting companies, such as corporations and limited liability companies (LLCs), must disclose detailed information about their beneficial owners and company applicants to FinCEN.

The information entities need to include in beneficial ownership information reports (BOIR) fall into three categories:

Company Information

The CTA requires reporting companies to disclose the following information:

• Legal name of the company
• Doing Business As (DBA) or trading names
• Address of the principal place of business in the U.S.
• Current address where the company conducts its operations if the principal place of business is outside the U.S.
• Jurisdiction of the formation
• Tax Identification Number (TIN)

Foreign companies are expected to report the tax identification number issued by their home jurisdiction and provide the name of that jurisdiction to FinCEN.

Beneficial Owners' Information

A beneficial owner is an individual who owns or controls at least 25% of an entity or has significant control over its decision-making process. Reporting companies are expected to disclose the following information about their beneficial owners:

• Full names
• Dates of birth
• Residential addresses
• Unique identification numbers from an identification document, such as a U.S. driver's license or passport, and the issuing states or jurisdictions for the identification document

Company Applicants' Information

A company applicant is an individual who files or directs the filing of a firm's formation documents with the secretary of state or similar offices. Only entities formed on or after January 1, 2024, are expected to provide information on their company applicants.

The information required from company applicants is the same as that required from beneficial owners.

Triggers for Updating BOI Reports

Entities must update their BOI reports whenever the information provided in the initial report changes. However, changes related to the company applicants do not necessitate an update.

The numerous triggers for updating a BOI report can be categorized into three main groups:

Company Information Changes

Any modifications to the company's details disclosed in its initial report, such as registering a new business name or changing the business address, necessitates filing an updated BOI report.

Changes in Beneficial Owners

Changes in beneficial ownership can trigger the need for an updated BOI report. The key events that necessitate an update typically include:

• Appointing new senior officers like chief executive officers or chief operating officers
• The sale of a company which alters who meets the 25% ownership threshold
• The death of a beneficial owner

Furthermore, if the company secures external funding that results in an investor acquiring substantial control over its decision-making process, an updated BOI report is required. For companies with minority shareholders, an update is only necessary if the shareholders gain substantial control over the company.

Changes in Beneficial Owner's Personal Details

When any information the beneficial owner provides in the initial report changes, an updated report is required. Typical events that necessitate an update include:

• Name changes due to marriage or divorce
• Residential address changes
• Expiration of the identification documents

In the special case that the beneficial owner is a minor child, the company must file an updated report once the child reaches the age of maturity.

When to Correct a BOI Report

Originally, the Corporate Transparency Act (CTA) outlined specific situations that would require entities to correct their beneficial ownership information (BOI) reports. This typically applied when a company identified errors in previously submitted reports, such as:

• Misspelled names
• Incorrect addresses
• Errors in unique identification numbers

Under the original framework, entities were expected to file a corrected report with FinCEN within 30 days of discovering the error. Corrections made within 90 days of filing the initial report were not subject to penalties. While recent legal developments have created uncertainty about enforcement, entities may still find it beneficial to ensure their records are accurate.

Steps To Take When There Is a Change in BOI

If beneficial ownership information changes, the original reporting framework outlined that companies would need to submit an updated report within 30 days. Depending on the nature of the change, additional steps may be necessary, such as:

• Expired identification – A picture of an updated identification card may be required.
• Death of a beneficial owner – The reporting company may need to wait until the estate is settled before submitting an updated report.
• Ownership disputes – If a dispute arises after an initial report is filed, an updated report may be needed once the issue is resolved.

While the current status of enforcement is uncertain, staying informed on potential updates can help businesses navigate future reporting expectations.

Setting Up Internal Processes To Manage Changes in Beneficial Ownership

The reporting requirements of the CTA necessitate that entities keep track of beneficial owners and their personal details, such as name changes due to marriage or address changes after purchasing a new home.

To manage these changes effectively, reporting companies should establish internal processes that include:

• Designating responsible personnel to monitor and record changes in beneficial ownership
• Conducting periodic internal audits to review company records and ownership
• Utilizing tracking software to monitor changes in beneficial ownership and leadership information
• Running awareness campaigns to educate beneficial owners and senior officers on the importance of updating their information with the company

These processes will help ensure timely reporting and adherence to FinCEN's requirements.

Partnering With Harbor Compliance To File Updated and Corrected BOI Reports

After filing the initial BOI report, companies aren't required to submit annual reports to FinCEN. The only time an entity needs to file an additional report is when the original information provided changes or is corrected. While this may seem straightforward, managing these changes can become complex as your organization evolves and ownership structures change.

Keeping track of these requirements, alongside other legislative and licensing obligations, can be overwhelming. This is where Harbor Compliance steps in.

At Harbor Compliance, we specialize in managing licensure and helping entities adhere to different regulatory requirements in the U.S. Our BOI Reporting Service is designed to help companies file initial, updated, and corrected BOI reports, ensuring you can easily focus on running your business and avoid penalties.

Benefits of Partnering With Harbor Compliance for Beneficial Ownership Information Reporting (BOIR)

While your entity can handle BOIR independently, outsourcing to a third-party service provider like Harbor Compliance often proves more advantageous. With our experience navigating complex regulatory requirements, partnering with us offers several benefits, including the following:

• Outsourcing frees up valuable time, allowing you to focus on core business activities rather than filing BOI reports.
• You get peace of mind and assurance knowing professionals are handling your BOI reports.
• You receive periodic reminders to review and update your BOI reports, ensuring you meet the FinCEN's 30-day deadline and avoid penalties.

In addition, we offer Records Manager, one of the modules from our proprietary Software Suite. This tool is designed to streamline the internal process for managing and monitoring changes in BOI.

Our Records Manager:

• Centralizes beneficial ownership data for easy access and management
• Notifies your entity of important deadlines and changes that need to be reported
• Allows you to store and organize ownership and leadership documents

How To Order Harbor Compliance's BOI Reporting Service

Harbor Compliance simplifies BOI reporting with a base annual fee, which files up to four initial, corrected, and updated reports annually. To order our services, follow these steps:

1. Visit Harbor Compliance's service ordering wizard.
2. Indicate whether you're ordering the service for single or multiple entities.
3. Provide the required details, such as your company's name and contact information.
4. Submit the online form to finalize your service request.

Harbor Compliance's Additional Services

Harbor Compliance's expertise extends beyond BOI reporting. We offer comprehensive services to support entities, including business licensing and managing Doing Business As (DBA) requirements.

The table below provides an overview of our additional services and ways we can assist you in streamlining your operations:

Change in Beneficial Ownership FAQs

In this section, we'll answer common questions related to changes in beneficial ownership. To explore more resources, visit our information center.

Simplify Your BOI Reporting Journey With Harbor Compliance

Since the CTA took effect in January 2024, many entities have concentrated on filing initial BOI reports. However, as time passes, reporting companies must also file updated and corrected reports.

Establishing an internal process to manage changes in beneficial ownership is crucial for adhering to the CTA's reporting requirements. More importantly, partnering with Harbor Compliance can streamline your BOI reporting process, ensuring you meet all obligations effortlessly. Order our BOI Reporting Service and let us file your initial, updated, and corrected BOI reports.

You can also use our FREE Harbor Compliance Score™ to assess your standing with state legislation and book a demo session to see how our services can help you. You can also contact us to inquire about our additional solutions.