Do Sole Proprietors Need to File a BOI Report?

With the implementation of the Corporate Transparency Act (CTA) on January 1, 2024, many business owners are grappling with new reporting requirements, particularly regarding Beneficial Ownership Information (BOI) reports.

This article aims to clarify whether sole proprietors are required to file a BOI report and what implications this has for their businesses.

What is a BOI Report?

A Beneficial Ownership Information report is a document that provides detailed information about the individuals who own or control a business entity. The purpose of this report is to enhance transparency and prevent financial crimes such as money laundering and fraud.

Under the CTA, certain business entities must file these reports with the Financial Crimes Enforcement Network (FinCEN).

Key Information Included in a BOI Report

Typically, a BOI report must include:

• Full legal name of the reporting entity
• Any trade names or “doing business as” (DBA) names
• Address of the principal place of business
• Tax identification number (such as an Employer Identification Number or EIN)
• Information about beneficial owners, including their names, addresses, and identification numbers
• Copy of ID, Driver’s License or Passport

Sole Proprietorships and BOI Reporting

Sole proprietorships are generally exempt from the requirement to file a BOI report.

This exemption stems from the nature of sole proprietorships, which do not have a complex ownership structure. Instead, they are owned and operated by a single individual, making them fundamentally different from corporations, LLCs, and partnerships that are typically required to file.

Filing a DBA

Many sole proprietors choose to operate under a fictitious business name, commonly known as a “doing business as” (DBA) name. It is important to note that registering a DBA does not change the legal status of a sole proprietorship. Therefore, even if a sole proprietor registers a DBA, they are still not classified as a reporting company under the CTA and are not required to file a BOI report.

Who Needs to File a BOI Report?

When trying to understand who needs to file a BOI report, you have to know that the CTA specifies that a reporting company is any entity created or registered in the U.S. by filing a document with a secretary of state or a similar office.

This includes:

• Corporations
• Limited Liability Companies (LLCs)
• Partnerships

Unlike sole proprietorships, these entities have more complex ownership structures, which is why they are subject to the BOI reporting requirements.

Specific Situations for Sole Proprietors

While sole proprietors are generally exempt from filing, there are a few scenarios where they might need to consider their obligations:

Single-Member LLCs: If a sole proprietor forms a single-member LLC, they must file a BOI report because the LLC is a separate legal entity created through state registration.

Business Structure Changes: If a sole proprietor decides to change their business structure to a partnership or corporation, they will then be subject to BOI reporting requirements.

Compliance and Consequences

For sole proprietors who are exempt from filing a BOI report, it is still essential to stay informed about compliance requirements as they relate to their business activities.

Failing to comply with the CTA can lead to significant penalties for those who are required to report. Civil penalties can include fines of up to $500 per day for noncompliance, while willful violations can result in fines up to $10,000 and potential imprisonment.

In summary, sole proprietors typically do not need to file a BOI report under the Corporate Transparency Act, even if they operate under a fictitious business name. However, it is crucial for sole proprietors to understand their business structure and any changes that may affect their reporting obligations.

Consulting with legal or financial professionals can provide clarity and ensure compliance with federal regulations.