How to Handle Changes in Ownership for BOI Reporting

Introduction: The Importance of Reporting Ownership Changes

Beneficial Ownership Information (BOI) regulations require businesses to accurately report not only the current ownership structure but also any changes in ownership or control. These changes can significantly impact a company’s compliance with the Financial Crimes Enforcement Network (FinCEN) regulations, as failing to update BOI reports after an ownership change can lead to penalties, increased scrutiny, and legal complications.

Whether your business is bringing on new investors, transferring ownership stakes, or undergoing a merger or acquisition, it’s essential to understand how these changes affect your BOI reporting obligations. In this blog, we’ll guide you through how to handle changes in ownership for BOI reporting, the deadlines for filing updated reports, and how Henry Kulik CPA and Ash CPA can assist in ensuring your business remains compliant.

What Constitutes an Ownership Change?

An ownership change occurs when there is a significant shift in the individuals who own or control a company. Under FinCEN’s BOI regulations, these changes must be reported when they meet certain thresholds or criteria. Common ownership changes that trigger BOI reporting include:

1. New Beneficial OwnersIf a new individual acquires 25% or more of the business, they must be reported as a beneficial owner. This can occur when new investors buy into the company or when a portion of the company is sold.
2. Transfer of Ownership StakesIf an existing beneficial owner transfers part or all of their ownership stake, resulting in a change in their percentage of control, the BOI report must be updated to reflect the new ownership structure.
3. Changes in ControlChanges in control—such as the appointment of new directors, executives, or managers with significant decision-making power—must be reported. These individuals may not own shares, but their level of control qualifies them as beneficial owners.
4. Mergers and AcquisitionsWhen two companies merge or one company acquires another, the ownership and control structures often change. These changes must be reflected in updated BOI reports to ensure compliance with FinCEN’s regulations.

How to Report Ownership Changes

When an ownership change occurs, it’s critical to file an updated BOI report with FinCEN to ensure that your company remains compliant. Here’s how to report changes in ownership:

1. Identify the New Beneficial OwnersThe first step is identifying the individuals who qualify as beneficial owners under the new ownership structure. Beneficial owners are typically defined as individuals who directly or indirectly own 25% or more of the company’s shares, voting rights, or control. It’s also important to identify individuals who have gained significant control, even if they do not hold an ownership stake.
2. Gather Required InformationOnce the new beneficial owners have been identified, gather the following information for each individual:
   • Full legal name
   • Residential address
   • Identification number (such as a passport or driver’s license number)
   • Date of birth
   • Ownership percentage or control level within the company
3. Submit the Updated BOI ReportThe updated BOI report must be submitted to FinCEN within 30 days of the ownership change. Failing to meet this deadline can result in penalties, so it’s important to act quickly.
4. Keep Records of the SubmissionAfter submitting the updated BOI report, keep records of the confirmation from FinCEN. This documentation is essential in case there are any future inquiries or disputes regarding your company’s compliance.

At Henry Kulik CPA and Ash CPA, we assist businesses in identifying new beneficial owners, gathering the required information, and submitting updated BOI reports on time. Visit our BOI Services page for more information.

Consequences of Failing to Report Ownership Changes

Failing to report changes in ownership within the required time frame can lead to severe penalties and other consequences for your business. Here’s what can happen if you don’t comply with BOI reporting requirements:

1. Daily Financial PenaltiesBusinesses that fail to submit updated BOI reports after an ownership change may face $591 per day in penalties for each day the violation continues. These fines can quickly accumulate, especially for businesses that are unaware of their reporting obligations.
2. Increased Regulatory ScrutinyNon-compliance with BOI regulations may attract additional scrutiny from FinCEN and other regulatory authorities. This can lead to more frequent audits, investigations, and potential legal action, all of which can be costly and time-consuming for your business.
3. Reputational DamageCompanies that fail to comply with BOI reporting requirements may face reputational damage, particularly if they are found to be hiding or obscuring their ownership structure. This can harm relationships with investors, clients, and business partners who expect transparency.
4. Legal ActionIn extreme cases of willful non-compliance, businesses may face legal action. Failing to report changes in beneficial ownership can lead to lawsuits, especially if the business is found to be involved in illegal activities such as money laundering or fraud.

At Henry Kulik CPA and Ash CPA, we help businesses avoid these consequences by ensuring that all ownership changes are reported accurately and on time.

Common Scenarios that Trigger BOI Reporting

Many businesses experience changes in ownership or control at some point during their lifecycle. Here are some common scenarios that typically trigger BOI reporting:

1. Equity Investment RoundsStartups and growing businesses often bring in new investors through equity funding rounds. If a new investor acquires a significant ownership stake, an updated BOI report must be filed with FinCEN.
2. Buyouts and AcquisitionsIf your company is acquired by another business, or if a controlling stake is bought by an individual or group, you must file an updated BOI report to reflect the change in ownership and control.
3. Succession PlanningWhen ownership of a company is transferred to the next generation through succession planning, BOI reports must be updated to include the new owners. This is especially important for family-owned businesses that pass ownership from one family member to another.
4. Partnership ChangesIf a partner in a limited liability partnership (LLP) sells their stake, or if new partners join the business, these changes must be reflected in updated BOI reports.
5. Executive ChangesIn some cases, changes in executive leadership—such as the appointment of a new CEO or managing director—can trigger BOI reporting requirements if the individual gains significant control over the company’s operations.

How We Help Businesses Stay Compliant

At Henry Kulik CPA and Ash CPA, we provide comprehensive services to help businesses manage changes in ownership and stay compliant with BOI regulations. Our services include:

• Ownership Identification: We help businesses identify beneficial owners and ensure that their information is accurately reported.
• Accurate BOI Reporting: We handle the preparation and submission of updated BOI reports to FinCEN, ensuring compliance with all regulatory requirements.
• Ongoing Compliance Monitoring: We provide ongoing monitoring of ownership structures to ensure that any changes are reported promptly.
• Consulting for Mergers and Acquisitions: We work with businesses undergoing mergers, acquisitions, or restructuring to ensure that BOI reporting obligations are met.