Who is a beneficial owner?

Here, we discuss who is a beneficial owner for the purpose of filing a BOI report?

The Financial Crimes Enforcement Network (FinCEN) requires reporting companies to submit a Beneficial Ownership Information (BOI) report. The BOI report identifies the beneficial owners of the company and provides additional information for each beneficial owner.

This information is collected by FinCEN to protect the U.S. financial system from illicit use. FinCEN provides this information to law enforcement and other government agencies to help prevent corrupt individuals, terrorists, and proliferators from hiding money or other property in the United States.

The United States is one of more than 30 countries that have implemented some form of central register of beneficial ownership information. The implementation of the BOI report and beneficial ownership reporting requirement is a significant step forward in the fight against financial crime.

Who is a beneficial owner?

A beneficial owner is any person who directly or indirectly:

1. Exercises substantial control over your company, OR
2. Owns or controls at least 25% of your company.

Your company must identify as beneficial owner any individual who meets either one of the two criteria for beneficial owner above, unless such individual is exempt from being a beneficial owner. To learn more, visit Who is exempt from being a beneficial owner?

Who is considered to exercise substantial control over a company?

Generally, anyone who is able to make important decisions on behalf of your company is considered to exercise substantial control over the reporting company.

A person with substantial control of your company generally includes at least one of the following:

• Senior officer of the company. Senior officer includes an individual holding the position or exercising the authority of a president, chief financial officer (CFO), general counsel, chief executive officer (CEO), chief operating officer (COO), or any other officer who performs a similar function. Senior officer does not include corporate secretary and treasurer.
• A person with authority to appoint or remove senior officers or a majority of the board of directors or similar body; or
• A person who directs, determines or has substantial influence over important decisions made by the company. An individual performing ordinary advisory or other third-party professional services to a reporting company should not be included.
• A person who exercises any other form of substantial control over the company.

For example, a CEO with authority to hire or fire other senior executives such as the CFO or COO would be considered to exercise substantial control. On the other hand, a manager who merely has authority over day-to-day operations and can hire or fire only junior staff will not be considered to exercise substantia control.

How do I know if I own or control 25% or more of a company?

For an individual to qualify as a beneficial owner, he or she must own or control 25 % of ownership interest in the reporting company.

When submitting the BOI report, a reporting company must identify and report information about each beneficial owner that has at least 25% ownership in the company.

To determine if an individual has at least 25% interest in a reporting company, their direct and indirect ownership is calculated as a percentage of the company’s total outstanding units or shares. If the calculation is not certain, then any individual with 25% or more of any class or type of ownership interest is considered to meet the required threshold.

FINCEN requires that direct and indirect ownership be considered. For example, if an individual holds 5% of the shares of a reporting company and also holds 50% of the shares of a company that owns 40% of the reporting company in question, then the individual will hold a total of 25%. 5% direct ownership and 20% indirect by owning half the company that owns 40%. Therefore, that individual will be considered a beneficial owner for FINCEN reporting purposes and will have to be disclosed on the BOI report.

An individual with only indirect ownership interest will also be considered a beneficial owner. For example, if an individual owns 50% of a reporting company A, which in turn owns 50% of a reporting company B, then the individual will be considered to own 25% of company B and be reported as a beneficial owner of company B. The same individual will also have to be reported as a beneficial owner of company B as he or she owns 50%.

For the purposes of defining ownership interest, FINCEN does not only consider ownership of common shares of a corporation or units of an LLC. FINCEN also considers other types of interests to be ownership interest in a reporting company. Those might include capital or profit interests, including partnership interests, convertible instruments such warrants or rights, or other options or privileges to acquire equity. Debt instruments can also be considered ownership interests if they enable the holder to exercise the same rights as an equity holder, including if they enable the holder to convert the instrument into equity or other interests. Situations involving convertible instruments, such as convertible debt or convertible preferred shares can be rather complicated. If you are unsure whether you own or control 25% or more of company we recommend that you seek the advice of a licensed corporate attorney.

When should a company report Its beneficial owners?

If your company was created or registered before January 1, 2024, then you need to report information about your beneficial owners in your initial BOI report or any subsequent BOI reports by January 1, 2025. 

If your company was created or registered on or after January 1, 2024, then you need to report the beneficial ownership information on your initial BOI report within 30 days of company formation or registration, and subsequently file updated BOI reports to update the beneficial ownership information.

When do I need to update a BOI report?

If the beneficial owner information you provided is incorrect, then your company needs to file a corrected BOI report to correct the beneficial owner information. 

If the beneficial owners of reporting company change, then your company needs to file a update BOI report to update the beneficial owner information. Changes in beneficial ownership can occur after a major corporate event such as a merger, acquisition or a debt restructuring which leads to a change of ownership, a change in ownership interest or a change of persons who exercise substantial control. Other common cases where a change in beneficial ownership can occur is when there is a change in senior management or in the case of inheritance.

Failure to report beneficial owners.

Willful failure to report beneficial owners on the BOI report may result in civil and criminal penalties. Companies should implement controls to ensure that they are in compliance with FinCEN’s BOI reporting requirements.

Are you wondering if you need to file a BOI Report? Contact us, and we’ll clarify all aspects of the BOI Report related to your company profile!