Update 12/27/24. As of December 27, 2024, enforcement of the Corporate Transparency Act has been suspended, meaning that startups are currently not required to file a BOI report. However, this situation is subject to change and it's advisable to stay informed about any future developments.
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Beneficial Ownership Information (BOI) reporting is a requirement for small businesses in America. While it is primarily a compliance piece, BOI reporting is also a good motivation to clean up your cap table, improve transparency within your business, and set your startup up for success.
In this guide, we'll break down BOI reporting into clear, actionable steps—no legal jargon, just practical advice to help you nail this essential piece of your startup's compliance.
What is BOI reporting?
The Corporate Transparency Act (CTA) introduced BOI reporting as part of the government's efforts to increase financial transparency and prevent illicit activities. Think of it as the government's way of keeping tabs on who really pulls the strings in businesses across America.
BOI reporting involves the disclosure of information about individuals who have significant control or ownership in a legal entity. This includes details about individuals who directly or indirectly own or control a specified percentage of the entity’s shares or voting rights or who otherwise exercise significant influence over the company’s operations.
Defining beneficial ownership
At its core, beneficial ownership refers to the real people behind your company. This includes anyone who owns 25% or more of your company or has significant control over your company's decisions. It's not just about who's listed on paper, it's about who actually has the power to make things happen.
Key terms you should know
- Reporting company. A reporting company is typically any domestic corporation, LLC, or other entity created by filing with a secretary of state.
- Beneficial owner. The beneficial owner must be an actual person, not another company.
- Company applicant. The company applicant is the person who filed your formation documents, and FinCEN (the Financial Crimes Enforcement Network) oversees this whole process.
Who needs to file BOI report?
Most startups need to file a BOI report
If you're running a startup, chances are you'll need to report. The requirements generally apply to companies created by filing with a state, those with fewer than 20 full-time employees, and those with annual revenue under $5 million. Yes, this includes pre-revenue startups.
Understanding exceptions
Some businesses don't need to file, but the exemptions are limited. They're primarily for larger operating companies, regulated industries like banks, and tax-exempt organizations. When in doubt, assume you need to report rather than risk non-compliance.
Information required for filing
- Basic company details. Your filing starts with the fundamentals: your legal name, formation date and jurisdiction, U.S. business address, and tax identification number.
- Beneficial Owner Information. For each beneficial owner, you'll need to gather comprehensive personal details. This includes their full legal name, date of birth, and current residential address. You'll also need a unique identifying number from a valid government-issued ID and an image of that ID document.
- Company applicant details. The person who filed your formation documents needs to provide the same level of personal information as beneficial owners. This creates a clear chain of responsibility from your company's beginning.
Visit the FinCEN website to know more.
Step-by-Step BOI filing process
The process is fast and easy when you have all information handy.
- Gather your information. Start by reviewing your cap table to identify owners meeting the 25% threshold. Think carefully about who has substantial control over your company, and gather their required information systematically.
- Set up your FinCEN account. Next, creating your FinCEN account. Visit their website and set up your corporate profile. Consider getting a FinCEN identifier—while optional, it can make future filings much smoother.
- Submit your report. When you're ready, access the BOI filing system to enter your company and beneficial owner information. Take time to review everything carefully – accuracy at this stage prevents headaches later.
Maintaining compliance
BOI reporting isn't a one-time task. Changes in beneficial ownership must be reported within 30 days, and previously reported information needs to be updated when it changes.
Build a record-keeping system
Develop a system for maintaining digital copies of all submitted reports and supporting documents. Track your filing dates and deadlines, and document your beneficial owner designations.
Understand the stakes
Non-compliance carries serious consequences: civil penalties up to $500 per day and potential criminal penalties. It could also impact your future fundraising efforts and exits.
BOI makes keeping your cap table clean more important than ever
The introduction of BOI reporting fundamentally changes how startups need to think about their cap tables. Here's why: BOI reporting requires you to track and report beneficial ownership at a 25% threshold, which means your cap table isn't just about equity records, it's a crucial compliance tool.
Think about it this way: every time you issue new shares, grant options, or complete a funding round, you're potentially triggering a BOI reporting obligation. If these changes push someone over or under the 25% threshold, you have just 30 days to report it. Without a clean, up-to-date cap table, you might miss these triggers entirely.
This is particularly important for startups because:
- Multiple funding rounds can quickly change ownership percentages
- Option pools and employee grants can dilute ownership stakes
- Complex securities like SAFEs and convertible notes can affect beneficial ownership when they convert
- Board appointments and departures might require reporting, even without ownership changes
A well-maintained cap table helps you:
- Quickly identify who crosses the 25% threshold after any transaction
- Track changes in substantial control as your governance structure evolves
- Generate accurate beneficial ownership reports on demand
- Stay ahead of filing deadlines with automated notifications
Maintain a clean cap table and stay compliant with Cake Equity
Modern cap table platforms like Cake Equity can transform BOI compliance from a burden into a manageable task.
With Cake, you can automatically track ownership changes, monitor beneficial ownership thresholds, store shareholder information securely, and generate compliance reports quickly.
Looking for more ways to simplify your startup's compliance? Schedule a demo to see how Cake can help streamline your compliance processes.
Your next steps
It takes minutes to file your BOI report when you have a clean cap table and have updated business information handy.
- Review your cap table and identify beneficial owners
- Set up your compliance system
- Create your FinCEN account and begin filing
Whether or not you need to file a BOI report, maintaining an updated record of your equity structure and business documents is important in practicing healthy startup governance.
Disclaimer: While this guide provides general information about BOI reporting requirements, it's not legal advice. Consider consulting with legal counsel for guidance specific to your situation.
This article is designed and intended to provide general information in summary form on general topics. The material may not apply to all jurisdictions. The contents do not constitute legal, financial or tax advice. The contents is not intended to be a substitute for such advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.
