Does a Sole Proprietor Need to File a BOI Report? A Complete Guide

Since the Corporate Transparency Act (CTA) went into effect on January 1, 2024, sole proprietors may have been wondering whether they’re liable to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).

Luckily, the CTA defines which entities must report information on their beneficial owners and company applicants, among other details. The act also lists all the entities that are explicitly exempted from reporting BOI.

So, does a sole proprietor need to file a BOI report? To answer this question, we’ll first define what a sole proprietorship is and explain who is required to file initial and updated reports under the CTA. We’ll also show you how Harbor Compliance simplifies BOI reporting for organizations of every size and industry.

Who Is a Sole Proprietor?

A sole proprietor is an individual who owns and operates a business alone. In this arrangement, the business and the owner are considered the same entity—the owner is personally responsible for all aspects of the business. A sole proprietor enjoys all profits generated by their business but is also liable for any losses, liabilities, and debts.

A sole proprietorship is not a formally registered entity, and there’s no paperwork involved in its formation unless a state specifically requires it. If the owner does not obtain an EIN (Employee Identification Number), they must pay taxes using their personal Social Security number (SSN).

Sole proprietors can operate under any business name by registering a “Doing Business As” (DBA) name.

What Is a Reporting Company?

The CTA defines two broad categories of reporting companies that are required to submit a BOI report to the FinCEN:

1. Domestic—Entities that were formed by filing a document with the secretary of state or similar authority in the U.S. This includes organizations like corporations, LLCs, partnerships, and certain nonprofits.
2. Foreign—Entities that were formed in a foreign country but have filed a document with the secretary of state or an equivalent office to legally do business in the U.S.

The CTA lists 23 types of entities that are exempt from reporting any information to FinCEN. These include:

• Insurance companies
• Accounting firms
• Banks
• Pooled investment vehicles
• Inactive entities
• Large operating companies

You can find the complete list of companies that do not need to report their beneficial ownership information on FinCEN’s Small Entity Compliance Guide.

Are Sole Proprietorships Considered Reporting Companies?

The CTA does not mention sole proprietorships in its list of exempted entities. However, since sole proprietorships are usually not formed by filing a document with a secretary of state, nor are they foreign entities authorized to do business in the U.S., they do not count as reporting companies. Therefore, they are not required to file any beneficial ownership information with the FinCEN.

However, if you decide to formalize your proprietorship by filing a formation document with the secretary of state or a similar office, then it will be considered a reporting company, and you will be required to submit a BOI report.

Elevating a Sole Proprietorship to a Private Company

If you decide to formalize your business and transform your sole proprietorship into an LLC or a corporation, you’ll need to create an entirely new legal entity by filing the appropriate formation document with the secretary of state’s office.

In this scenario, your new entity will be considered a reporting company since it was formed by filing a document with a secretary of state. Therefore, you’ll need to meet the BOI reporting requirements under the CTA.

To file the BOI report for your new organization, you’ll have to submit the following details for all beneficial owners (individuals who own or control at least 25% of the company or maintain substantial control over it):

• Complete legal name
• Address
• Date of birth
• Identification number
• A picture of the document used to obtain the identification number

Transitioning from owning a sole proprietorship to operating an LLC or corporation brings numerous challenges, including various regulatory requirements you have to meet to remain in good standing with the state.

To streamline this mounting workload and free up time for running your new business, consider partnering with a professional service provider like Harbor Compliance. With its extensive experience and robust software solutions, Harbor Compliance simplifies and automates various compliance-related tasks—including filing BOI reports.

Harbor Compliance—Your Key to Effortless BOI Reporting

Any reporting company can take advantage of Harbor Compliance’s BOI Reporting Service—it helps you meet all the requirements laid down by FinCEN with minimal involvement on your part.

Once you partner with us, we’ll securely collect your most up-to-date beneficial ownership information and file the initial BOI report on your behalf. Our service entails up to four updated or corrected reports in a single year, so you have nothing to worry about even if your BOI details change at some point after submitting the initial report.

Once we’ve filed your initial report, we will consolidate all your beneficial ownership information on a single platform so you can track any changes regardless of your location.

We understand that keeping up with the latest regulations and requirements of the CTA can be extremely time-consuming, especially if you’re running a new business and have limited experience in navigating regulatory filings. That’s why we send automated notifications to remind you of any upcoming filing requirements.

Benefits of Harbor Compliance’s BOI Reporting Service

Check out the three most prominent reasons why you should delegate your BOI reporting to Harbor Compliance:

1. Saves time—According to FinCEN, preparing and filing just one BOI report can take around three hours. By letting us handle your initial, corrected, and updated BOI reports, you can save precious time and invest it into growing your business.
2. Consistent reminders—We’ll periodically remind you to check whether the information provided in your BOI report is up to date. If you notice, for example, that a beneficial owner’s document has expired, all you need to do is give us accurate information, and we’ll prepare an updated report promptly.
3. Instant access to all data—Records Manager, which is part of our separate Software Suite, lets you store all your beneficial ownership information in one place. From leadership roles and share percentages to documents used for identification numbers, you’ll have all the information at your fingertips.

How To Order the BOI Reporting Service

Ordering our service is simple and quick. Just visit our signup wizard and follow the three steps outlined below:

1. Choose the option that suits your needs:
1. Single business (LLC, corporation, or nonprofit that is not 501(c) exempt)
2. Multiple businesses
2. Provide all the relevant information, including contact details, legal company name, business structure, etc.
3. Pay a flat annual fee of $199 before checking out.

Once you’ve completed the checkout process, we’ll start working on your initial report. Once done, we’ll also be available to help you with updated and corrected reports.

Additional Services by Harbor Compliance

BOI reporting isn’t our only strong suit. We offer a range of solutions to help you meet all your regulatory requirements. The table below outlines the most popular services from our extensive portfolio:

BOI Report for Sole Proprietorship FAQs

Below, you’ll find answers to a few commonly asked questions regarding sole proprietorships and BOI reporting. If you wish to learn more, feel free to visit FinCEN’s FAQ page or our native Information Center.

Simplify Your BOI Reporting With Harbor Compliance

In a nutshell, sole proprietorships do not have to file a BOI report to FinCEN. However, if your business takes off and you decide to form an LLC or a corporation, you’ll be required to report your BOI. To delegate the entire reporting process to experts and avoid potential fees and penalties, order our BOI Reporting Service and focus on your primary work.

If you’re unsure whether your organization meets its other state and regulatory requirements, get a free Harbor Compliance Score™ and address any issues of concern proactively. If you do spot any red flags, reach out to us and we’ll find a solution tailored to your needs.

To get an idea of how we use technology to streamline compliance workloads, schedule a free demo of our award-winning software.