Beneficial Owners of a Reporting Company: A Closer Look at BOI Reports

The term ‘beneficial owner’ refers to an individual or entity that enjoys the benefits of ownership or control over a specific asset, such as shares of stock or interests in a company, even if another party holds the title of ownership. Identifying the beneficial owner is crucial for regulatory compliance and transparency within a reporting company.

In this blog, we’ll provide a clear explanation of who qualifies as a beneficial owner, as outlined in the BOI reporting issued by FinCEN.

Who is a beneficial owner?

A beneficial owner of a reporting company (or any entity required to submit a BOI report) is defined as 

• Any individual who, directly or indirectly, exercises substantial control over a reporting company or 
• Who owns or controls at least 25% of the firm’s ownership interests

A person can be a beneficial owner through substantial control, ownership interests, or both. The Reporting company can have numerous beneficial owners. They are not required to report the reason  for an individual’s beneficial ownership (i.e., substantial control or ownership interests)

How is “Substantial Control” defined? 

Reporting firms must identify all persons who have significant influence over the company. There is no limit to the number of people who can be reported for having substantial control. An individual has considerable control over a reporting firm if the individual fulfills any of the following four comprehensive criteria:

• The person is a senior officer (the company’s president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer who serves in a similar capacity). 
• The individual who has the authority to appoint or remove certain officers or the majority of directors (or similar ones) of the reporting company. 
• The individual who is an important decision-maker for the reporting company—critical decisions include decisions about a reporting company’s business, finances, and structure. An individual who directs, determines, or substantially influences these important decisions exercises substantial control over a reporting company. 
• The individual has any other significant control over the reporting firm. Control applied in novel and distinct ways can still be substantial. For example, flexible corporate structures may use different control indications.

What is meant by “Ownership Interest”?

Reporting companies must identify all individuals who own or control at least 25 percent of the company’s ownership interests. Any of the following may be an ownership interest:

• Equity, stock, or voting rights.
• A capital or profit interest.
• Convertible instruments.
• Options or other non-binding privileges to buy or sell any of the preceding.
• Any other instrument, contract, or other mechanism used to establish ownership.

A reporting company may have multiple types of ownership interests.

How can I determine the beneficial owners of my business?

Your company can take the following actions to determine beneficial owners:

Step 1: Individuals may directly or indirectly exercise substantial control. They can do so through contracts, arrangements, understandings, relationships, or otherwise. 

Step 2: Individuals may directly or indirectly own or control ownership interests. They can do so through contracts, arrangements, understandings, relationships, or otherwise.

Step 3: After identifying what types of ownership interests apply to your company and who owns or controls them, you must determine who owns or controls 25 percent or more of those ownership interests. 

Who is not considered a “beneficial owner”?

The following are not eligible to a beneficial owner:

•  A minor child provided that the reporting company satisfies the legal guardian’s or parent’s reporting obligations.
• A person acting on behalf of another person as a nominee, intermediary, custodian, or agent; 
• An employee who works only in the employment capacity of a reporting company and who, if they are not a senior officer, derives all of their substantial control over or financial advantages from the organization from their employment position.
• The only interest the individual has in the reporting company is a right of inheritance that will provide them with a future interest.
• A reporting company’s creditor.

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With TaxBandits, you can streamline your BOI reporting process and enjoy efficient service.

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