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09/28/2023

News

Beneficial Ownership and Substantial Control

On January 1, 2024, entities will be required to file a Beneficial Ownership Information (BOI) report with Financial Crimes Enforcement Network (FinCEN) unless they are exempt. FinCEN has proposed to update the timeline for entities created or registered to do business in the United States on or after January 1, 2024, and before January 1, 2025, to file from 30 days to 90 days. If an individual fails to file the report he or she faces detrimental penalties, so it’s important to understand requirements for this report.

The Beneficial Owner at your entity

  • A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the entity or owns or controls not less than 25 percent of the ownership interests of the entity. There are a few exceptions, such as the minor children of a beneficial owner or a person that is solely an employee of the reporting company.

Beneficial Owner information that must be reported

Beneficial Owner Required Information:

  • Full legal name
  • Date of birth
  • Current, as of the date of report, residential or business street address
  • Unique identifying number from an acceptable identification document defined as: (i) a non-expired U.S. passport; (ii) a non-expired identification document issued by a state, local government or Indian tribe; (iii) a non-expired driver’s license issued by a state; or (iv) if the individual lacks all of the foregoing documents, a non-expired foreign passport. *must be physical address
  • Image of document the unique identifying number came from.

Who is NOT considered a Beneficial Owner

These are the individuals not considered to have beneficial ownership:

  • A minor child, provided the reporting company reports the required information of a parent or legal guardian;
  • An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
  • An employee of a reporting company, acting solely as an employee, whose substantial control over or economic benefits from the entity are derived solely from his or her employment status, provided that the person is not a senior officer;

Substantial Control

Currently, there are four ways an individual can apply substantial control over a reporting company. An indicator of substantial control is if this individual is considered an important decision maker. When determining whether an individual does exercise substantial control, we look at these four categories:

  • If the individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
  • The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
  • The individual is an important decision-maker for the reporting company. See below for more information
  • The individual has any other form of substantial control over the reporting company

Direct or indirect exercise of substantial control

An individual may directly or indirectly, including as a trustee of a trust or similar arrangement, exercise substantial control over a reporting company through:

  • Board representation;
  • Ownership or control of a majority of the voting power or voting rights of the reporting company;
  • Rights associated with any financing arrangement or interest in a company;
  • Control over one or more intermediary entities that separately or collectively exercise substantial control over a reporting company;
  • Arrangements or financial or business relationships, whether formal or informal, with other individuals or entities acting as nominees; or
  • any other contract, arrangement, understanding, relationship, or otherwise.

 Ownership Interest

  • An ownership interest is generally an arrangement that establishes ownership rights in the reporting company. Examples of ownership interests include shares of equity, stock, voting rights, or any other mechanism used to establish ownership.

An Important Decision Maker

  • Important decisions include decisions about a reporting company’s business, finances, and structure. An individual that directs, determines, or has substantial influence over these important decisions exercises substantial control over a reporting company.

This article discusses some important factor when determining on how to file your BOI with FinCEN and the information we have discussed has been gathered from:

If you have any questions, please reach our team at [email protected]. To access more information pertaining to the preparation for BOI following, here is FinCEN’s new guide.