Welcome to part three of our comprehensive seven-part series on Beneficial Ownership Information (BOI) reporting for small businesses. In our previous articles, we introduced you to the world of BOI reporting and explored the circumstances that require your company to report. Now, we delve into the heart of the matter: understanding what it means to be a beneficial owner.

Here, we’ll break down the critical concepts surrounding beneficial ownership, providing clarity on the definition, reporting requirements, and how to identify these essential stakeholders within your organization. Whether you are a seasoned business owner or just getting started, understanding beneficial owners is a must for compliance with the Corporate Transparency Act and other relevant regulations.

BOI Reporting: Defining the Beneficial Owner

It is essential to grasp the fundamental concept to embark on our journey into the world of beneficial ownership. A beneficial owner is any individual who, directly or indirectly, holds a significant stake in your reporting company.

This can be defined in two ways:

  • Exercising Substantial Control

Individuals qualify as beneficial owners if they exercise substantial control over your reporting company. Fundamental control can take various forms, such as being a senior officer, having the authority to appoint or remove officers or directors, being a significant decision-maker, or any other form of substantial influence.

  • Ownership Interests

An individual can also be considered a beneficial owner if they own or control at least 25 percent of the ownership interests in your company. Ownership interests include equity, stock, voting rights, capital or profit interests, convertible instruments, options, or other mechanisms used to establish ownership.

Reporting companies are not obligated to specify whether an individual is a beneficial owner due to substantial control or ownership interests. Instead, the key is to identify all beneficial owners within your organization and report their information accurately.

Multiplicity of Beneficial Owners

It’s worth noting that a reporting company can have multiple beneficial owners, each contributing to its governance and ownership structure differently. For example, one individual might exercise substantial control, while others hold significant ownership interests. In some cases, an individual may fulfill both criteria, possessing meaningful control and owning or controlling at least 25 percent of ownership interests.

There is no maximum limit to the number of beneficial owners that must be reported. FinCEN, the Financial Crimes Enforcement Network, expects every reporting company to have one or more individuals substantially controlling it. Consequently, identifying and reporting at least one beneficial owner to FinCEN is a requirement for all reporting companies.

Identifying Your Company’s Beneficial Owners:

Now that we clearly understand the definition of a beneficial owner, the next step is identifying these key individuals within your organization.

Fortunately, FinCen offers up a comprehensive “yes” or “no” checklist for determining considerable control over how your answer to each question chooses your next step and whether that does, in fact, deem someone as having substantial control.

The key is to remember this report must include individuals who own more than 25% of the company’s equity interests and those who exercise significant managerial control over the operation and management of your organization.

Once you have identified all beneficial owners, it’s time to accurately and promptly report their information to FinCEN—we’ll tell you more about doing that in subsequent posts.

Who Is Exempt From the Beneficial Owner Definition?

So, we know more about whom BOI reporting does apply, but who is exempt from the beneficial owner definition altogether?

FinCen also offers the five exceptions as well as helpful information for determining who is an exception to the beneficial owner definition.

These five examples are:

  1. A minor child
  2. Nominee, intermediary, custodian, or agent
  3. Employee
  4. Inheritor
  5. Creditor

Several further criteria must apply to these exceptions, so be sure to familiarize yourself with the details outlined by FinCen in their Small Entity Compliance Guide.

Beneficial Owner Definitions and Information for BOI Reporting: FAQs

Need a quick answer to a common BOI reporting question?

Check out these FAQs for more information on beneficial owner definitions and requirements for BOI reporting.

How do I find out who is a beneficial owner?

Identifying beneficial owners involves examining your company’s ownership structure and governance. Look for those with substantial control or own/control at least 25 percent of the ownership interests. It may require:

  • Reviewing corporate documents
  • Ownership agreements
  • Conducting due diligence

What is the difference between a business owner and a beneficial owner?

As shown in this article, business owner is a broad term. It’s one that can refer to anyone with ownership interests in a company, including shareholders, partners, and members.

A beneficial owner, on the other hand, specifically refers to individuals who either exercise considerable control over the company or own/control at least 25 percent of its ownership interests. Not all business owners are necessarily beneficial owners.

Is a beneficial owner always a person?

No, a beneficial owner can be an individual or a legal entity, such as a corporation or trust. In cases where a legal entity holds substantial control or ownership interests in a reporting company, the individuals who ultimately control that entity must identify as beneficial owners.

What percentage of ownership is a beneficial owner?

To qualify as a beneficial owner, an individual must own or control at least 25 percent of the ownership interests in a reporting company. This threshold helps identify individuals or entities with significant influence or financial stakes in the organization, ensuring transparency and compliance with relevant regulations.

Up next in this series of blog posts: Reporting company applicants.

Learn More About Being a Beneficial Owner with Contiguglia Law

The Denver business lawyers at Contiguglia Law have extensive experience helping clients navigate complex ownership structures and identify beneficial owners. If you have questions about your role as a business owner or your responsibilities as a beneficial owner, our knowledgeable attorneys are here to help.

Book a call with us today to find out exactly how we can guide you forward with BOI reporting in 2024.

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