(and What You Need to Know About the Beneficial Ownership Information Report) – Make sure you read to the end for a free guide.
Starting a new business can feel like juggling a dozen tasks at once. Amidst building your brand, creating a client base, and managing day-to-day operations, there’s a critical step you can’t overlook: deciding your business structure. Plus, a new federal requirement, the Beneficial Ownership Information (BOI) report, adds another layer of compliance for business owners.
Let’s break it all down, so you can make informed decisions and set your business up for success.
What is the BOI Report, and Do You Need to File It?
Under the Corporate Transparency Act, most U.S. businesses, including LLCs, are now required to submit a BOI report to the Financial Crimes Enforcement Network (FinCEN). This report helps prevent money laundering, terrorism financing, and other illicit activities by tracking who truly owns and controls companies.
Here’s what you need to know:
- Who Needs to File? If you own an LLC, Corporation, or other covered entity created before January 1, 2024, you must submit a BOI report by January 1, 2025.
- What’s in the Report? It includes details about the company (name, EIN, address) and its beneficial owners (name, DOB, address, and a copy of an identifying document like a driver’s license or passport).
- Penalties for Non-Compliance: Failure to file can result in civil penalties of $500/day up to a maximum of $10,000, plus potential criminal charges.
If your business was formed before January 1, 2024, check your compliance requirements now to avoid unnecessary fines.
Choosing Your Business Structure: What’s Best for You?
When you’re starting or growing your business, choosing the right structure is critical. Here’s a guide to help you decide:
1. Sole Proprietorship
- Best For: Low-risk, one-person operations.
- Key Features:
- Easy and inexpensive to set up.
- Taxes are reported on your personal tax return.
- Considerations:
- No liability protection—your personal assets could be at risk.
2. LLC (Limited Liability Company)
- Best For: Entrepreneurs seeking liability protection and flexible tax options.
- Key Features:
- Separates personal assets from business liabilities.
- Can be taxed as a sole proprietorship, partnership, or corporation.
- Considerations:
- Requires state filing and annual fees.
3. S-Corporation
- Best For: Businesses with steady profits where the owner works in the business.
- Key Features:
- Pass-through taxation saves on self-employment taxes.
- Owners take a “reasonable salary” and profits as dividends.
- Considerations:
- More compliance (e.g., bylaws, payroll).
4. C-Corporation
- Best For: Large businesses or those seeking outside investors.
- Key Features:
- Unlimited growth potential.
- Ability to retain profits in the business.
- Considerations:
- Double taxation (corporate and dividend levels).
- Higher administrative costs and compliance.
How to Decide
Ask yourself:
- Do I need liability protection?
- Am I looking for a simple setup or room to grow?
- How much profit do I expect to make, and what’s my tax preference?
If you’re unsure, starting with an LLC gives you flexibility to grow while offering liability protection. You can always elect S-Corp status later if profits increase significantly.
Why Compliance Matters
Choosing a business structure is just the beginning. Staying compliant with federal (BOI reporting), state, and local requirements ensures your business operates smoothly without unexpected penalties or fees.
Need Help Getting Started?
Whether you’re starting fresh or reconsidering your current structure, we can help! Contact us for support with administrative tasks, compliance monitoring, and planning for success.
Bonus Resource: Free Worksheet
Need extra clarity? Download our Business Structure and Compliance Worksheet! It walks you through the key considerations for choosing your structure and tracks BOI filing deadlines and requirements.
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