Who Is a Beneficial Owner of a Business?

Any business entity that meets the Corporate Transparency Act (CTA) definition of a reporting company must report its beneficial owners in a Beneficial Ownership Information (BOI) report filed with the Financial Crimes Enforcement Network (FinCEN). While some exemptions and exceptions exist, the majority of small and mid-sized businesses formed as LLC, Corporations, and other registered entities are subject to the reporting rule.

The Definition of a Beneficial Owner

The CTA identifies a beneficial owner as an individual who either directly or indirectly exercises substantial control over the reporting company or who owns or controls at least 25% of the reporting company’s ownership interests. A company might have one or many beneficial owners depending on its ownership and management structure.

Beneficial owners must be individuals. In instances where another business entity owns a reporting company, the individuals who own that entity might be considered beneficial owners of the reporting company. However, under some circumstances, when an entity that’s exempt from the BOI reporting rule has ownership interests in a reporting company, it may be listed as a beneficial owner instead of an individual. When there are entities with ownership of other entities, determining who must be reported as beneficial owners can become complicated, so it’s helpful to consult an attorney or accountant for direction.

The Definition of Substantial Control

An individual has substantial control over a reporting company if they meet one or more of the criteria below:

• The person is—or has the authority of—a senior officer, such as President, Chief Financial Officer, Chief Executive Officer, Chief Operating Officer, General Counsel, or other position with comparable responsibilities.
• The person makes or influences important decisions (e.g., entering contracts, determining product lines, financial matters) for the reporting company.
• The person has authority to appoint or remove the reporting company’s senior officers or a majority of its governing body (e.g., board of directors).
• The person has some other form of substantial control.

The Definition of Ownership Interest

When someone has an arrangement that establishes ownership rights to a reporting company, they have an ownership interest. If an individual owns or controls 25% or more of the reporting company’s ownership interests either directly or indirectly, they are a beneficial owner.

Ownership interest examples include:

• Equity
• Stock
• Voting rights
• Capital or profit interest
• Convertible Instruments (eligible to be converted to equity, stock, voting rights, or capital or profit interest)
• Options or privileges to buy or sell any of the interests above
• Any other instrument, contract, or mechanism used to establish ownership

When a reporting company has multiple owners or individuals who have ownership interests indirectly (such as through ownership of an entity that has stock in a reporting company), it can be challenging to calculate ownership percentages and determine the persons who must be reported as beneficial owners. It’s critical to get it right because the penalties for filing inaccurate information or failing to file a BOI report are costly. Consider speaking with an accountant or attorney for advice.

The CTA has identified situations when individuals who would otherwise be considered beneficial owners do not have to be disclosed on a reporting company’s BOI report:

• The individual is a minor child (the parent or legal guardian may be reported instead).
• The individual acts on behalf of an actual beneficial owner as the beneficial owner’s nominee, intermediary, custodian, or agent (e.g., consultants, attorneys, accountants acting in an advisory capacity).
• The individual is an employee of the reporting company (provided they do not hold a senior officer position and whose control or economic benefit is derived solely from their status as an employee).
• The individual’s only interest in the reporting company is a future interest through a right of inheritance (once the person inherits the interest, they must be reported as a beneficial owner).
• The individual is a creditor of the reporting company.

Information That Must Be Reported About Beneficial Owners

A reporting company must provide the following information about the individuals who are its beneficial owners:

• The individual’s name and date of birth
• Home address
• Identification number from a passport, U.S. driver’s license, or other approved document
• Name of the state or jurisdiction that issued the identifying document
• Image of the Identifying document

BOI reports are not a recurring requirement. However, if a reporting company’s beneficial ownership information changes for any reason, it must issue an updated BOI report to FinCEN within 30 days of the change.

Some examples of when a reporting company may need to amend its report include:

• One of its beneficial owners sells their ownership interests to another person
• A beneficial owner moves to a new residential address.
• An individual who held an officer position (and was considered a beneficial owner by way of substantial control) resigns from that post.
• A minor child with ownership interests turns 18. The BOI report should now report that individual’s information instead of their parent’s or guardian’s information.

More BOI Information and Resources

• BOI Filing Requirements: What Is Needed?
• The Purpose of BOI Reporting
• Consequences of Not Filing a BOI Report
• What Is a BOI Report and Do You Need to File One?
• BOI Reporting Requirements by Entity Type
• Do Inactive Business Entities Need to File a BOI Report?
• Company Applicant vs. Beneficial Owner
• Who Is Authorized to File a BOI Report?
• Is the Beneficial Owner Information Report a One-Time or Recurring Filing?