As of January 1, 2024, many small businesses and other entities must file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). This requirement, established by the Corporate Transparency Act (CTA), includes special provisions for beneficial ownership information report for minor children.

Who is Considered a Beneficial Owner?

A beneficial owner is generally an individual who directly or indirectly:

• Exercises substantial control over a reporting company, or
• Owns or controls at least 25% of the ownership interests of a reporting company

Reporting for Minor Children

When a minor child meets the criteria for being a beneficial owner, the reporting process differs from that of adult beneficial owners:

1. Parent/Guardian Information: Instead of providing the minor child’s personal information, the reporting company may report the required information of a parent or legal guardian.
2. Indicating Minor Status: The report must indicate that the information provided relates to a parent or legal guardian of a minor child.
3. No Direct Reporting of Minor’s Information: The minor child’s personal information is not reported directly.

How to File the Report

To file a BOI report for a company with a minor child as a beneficial owner:

1. Access FinCEN BOI Filing Form: Use our BOI reporting form, which is securely connected to FinCEN’s Beneficial Ownership Secure System (BOSS), to submit your BOI report confidentially.
2. Complete Company Information: Provide the required information about the reporting company.
3. Beneficial Owner Section: In the beneficial owner section (Part III of the BOIR):
   • Indicate “Parent/Guardian information instead of the minor child”.
   • Complete the rest of Part III with the parent or legal guardian’s information.
4. Certification: The person filing the report must certify that the information is true, correct, and complete.

Why Would a Minor Child Hold Interest in a Company?

There are several strategic and practical reasons why parents or guardians might choose to give a minor child an ownership interest in a company. This approach can offer significant benefits for both the family and the business, particularly when planned carefully and executed properly.

Estate Tax Planning: One of the primary motivations for transferring company ownership to minor children is to reduce future estate taxes. This strategy, famously employed by Walmart founder Sam Walton, involves gifting shares or interests in a company to children while the business is still relatively small and its value is low. As the company grows, the appreciation in value occurs within the children’s ownership, effectively moving a substantial amount of wealth out of the parent’s estate. This can result in significant tax savings when the parents eventually pass away.

Encouraging Entrepreneurship: For children who show an early interest in business or have their own creative ventures, holding an ownership stake can be an educational and motivational tool. It can help them understand business concepts, financial responsibility, and the rewards of entrepreneurship from a young age. This hands-on experience can be invaluable for their future business endeavors.

Recognizing Contributions: In family businesses where children actively participate and contribute, granting them an ownership interest can be a way to acknowledge their efforts and invest them in the company’s long-term success. This can be particularly relevant for teenagers who work in the family business during summers or after school.

Succession Planning: For family-owned businesses, transferring ownership to children early on can be part of a broader succession plan. It allows for a gradual transition of control and helps ensure the company remains within the family for future generations.

Tax-Efficient Income Shifting: In some cases, distributing company income to children who are in lower tax brackets can result in overall tax savings for the family. However, this strategy must be carefully implemented to comply with tax laws and avoid scrutiny from tax authorities.

Important Considerations

• Age of Majority: When the minor child reaches the age of majority (as defined by the state or tribal law where the company was created or registered), the reporting company must file an updated BOI report with the individual’s own information.
• Multiple Beneficial Owners: If there are other beneficial owners, their information should be reported separately in the same filing.
• Updating Information: Any changes to the reported information must be filed within 30 days of the change occurring.

Penalties for Non-Compliance

Failure to comply with BOI reporting requirements can result in significant penalties:

• Civil penalties of up to $591 per day that the violation continues
• Criminal penalties of up to $10,000
• Possible imprisonment for up to two years

Seeking Assistance

If you’re unsure about your filing requirements, we recommend taking our 2-minute BOI eligibility quiz. This quick quiz will help you determine your reporting obligation.

By understanding and following these guidelines, reporting companies can ensure compliance with BOI reporting requirements when a minor child is involved as a beneficial owner. This will fulfill your legal obligations and ensure compliance with the Corporate Transparency Act.

Beneficial Ownership Information Reports for Minor Children – Conclusion

Filing a beneficial ownership report for a minor child requires careful attention to detail and adherence to regulatory requirements. By following the outlined steps and using our FinCEN BOI form, you can ensure that your filings are accurate and compliant. Remember, the parent or guardian plays a crucial role in this process until the minor reaches the age of majority, so proper documentation and regular updates are essential.