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  • Writer's pictureJacqueline C. Hawkins, esq,

Corporate Transparency Act- Beneficial Owners

Updated: Mar 7

As we previously highlighted here, the obligation to ensure accurate and timely FinCEN BOI reporting doesn’t just rest with the reporting company. Its beneficial owners share the burden of ensuring accurate and timely reporting, and ensuring any change within the beneficial ownership information is updated.


Once you determine if your company is a Reporting Company, the next step is to determine who its beneficial owners are.


A beneficial owner is any individual who, directly or indirectly:

  • Exercises substantial control over a reporting company; OR

  • Owns or controls at least 25% of the ownership interests of a reporting company.


It is important to note, an individual might be a beneficial owner through substantial control, ownership interest, or both. It is likely that any reporting company will have more than one beneficial owner.  For example, a reporting company may have a few owners who control at least 25% of the company and then a number of senior leadership who have authority to exercise substantial control. In this example, each individual would be included as a beneficial owner.  There is no maximum number of beneficial owners who must be reported.


What is Substantial Control?


For purposes of BOI reporting, an individual exercises substantial control over a reporting company if the individual meets any of the four general criteria:

  1. The individual is a senior officer;

  2. The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;

  3. The individual is an important decision-maker; or

  4. The individual has any other form of substantial control over the reporting company.


What is Ownership Interest?


Reporting companies are required to identify all individuals who own or control at least 25% of the ownership interests of the company. An ownership interest can be defined as any of the following: equity, stock or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership.


Steps to Determine Beneficial Owners.

  • Step One: Identify those individuals within your organization who have substantial control over the company.

  • Step Two: Identify the types of ownership interests in your company and the individuals that hold those ownership interests.

  • Step Three: Calculate the percentage of ownership interests held directly and indirectly by individuals.

 

Exceptions to the Beneficial Owner Definition


There are 5 exceptions where an individual who otherwise qualifies as a beneficial owner does not have to be included as a beneficial owner on the company BOI report to FinCEN:

  1. Minor Child;

  2. Nominee, intermediary, custodian, or agent;

  3. Employee- excluding senior officers and those performing similar functions;

  4. Inheritor; or

  5. Creditor


As expected, each of the 5 exceptions noted above have very specific criterion. Before taking any exception listed above on its face, it is important to dive into the FinCEN specific guidance on this topic or seek legal counsel.


For timeline to file and other general information, see our previous blog post on the Corporate Transparency Act or for guidance on who is a reporting company see Corporate Transparency Act- Reporting Companies.


If you have questions about the reporting requirements of your organization or who may be considered a beneficial owner, book a consultation with Executive Legal Services and a member of our team would be happy to walk through your specific circumstance with you.


Executive Legal Services is a North Carolina law firm focusing in the areas of Employment, Business, Contracts and outside general counsel services.

 

 

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