When it comes to business compliance, the term “beneficial owner” holds significant importance, especially under the Corporate Transparency Act (CTA). The concept of beneficial ownership is crucial for regulatory purposes, particularly for reporting companies that must submit Beneficial Ownership Information (BOI) to FinCEN. So, who exactly qualifies as a beneficial owner, and what role do they play in a company?

Who is Considered a Beneficial Owner?

A beneficial owner is any individual who either directly or indirectly:
⦁ Exercises substantial control over a reporting company, or
⦁ Owns or controls at least 25% of the reporting company’s ownership interests.

This means that a beneficial owner is not limited to someone with majority ownership but includes anyone who plays a significant role in the company’s decision-making or management. Importantly, beneficial owners must be natural persons (individuals), not corporations, trusts, or other legal entities. In specific cases, however, information about an entity may be reported instead of details about a beneficial owner, depending on the circumstances.

What is Substantial Control?

Substantial control refers to the level of influence an individual has over the operations and management of a company. There are four primary ways an individual can exercise substantial control:
⦁ Senior Officer Role: If the individual serves as a senior officer in the company, such as a president, CFO, CEO, or any similar top-level position, they are considered to have substantial control.
⦁ Authority to Appoint or Remove Directors: Individuals with the power to appoint or remove key officers or a majority of the company’s directors are deemed to exercise significant control.
⦁ Major Decision-Maker: If someone plays a pivotal role in making critical business decisions, even if they are not in an official senior officer role, they may still qualify as exercising substantial control.
By identifying individuals who fit these criteria, companies can ensure they are meeting the regulatory requirements for BOI reporting.

How to Identify a Beneficial Owner

To properly identify beneficial owners in a company, FinCEN’s Small Entity Compliance Guide provides helpful checklists and examples. The guide can assist businesses in determining who falls under the category of beneficial owner, especially when ownership or control structures are complex. Understanding these guidelines is crucial for companies that need to comply with BOI reporting rules under the CTA.
Knowing who qualifies as a beneficial owner is vital for any reporting company under the CTA. Whether it’s someone with substantial control or an individual owning at least 25% of the company’s interests, recognizing these key individuals ensures that companies remain compliant with beneficial ownership reporting requirements. Companies should make use of available resources, such as FinCEN’s compliance guides, to accurately identify and report their beneficial owners.
By staying informed about beneficial ownership rules, businesses can avoid penalties and remain compliant with the Corporate Transparency Act.