Effective January 1, 2024, all corporations, LLCs, and other entities created in the United States by the filing of a document with the secretary of state or similar office, or created in a foreign country and registered to do business in a state by filing a document with a secretary of state or similar office, unless otherwise exempt, have to file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN).
Compliance02 Januar, 2024|AktualisiertAugust 15, 2024
Who is a beneficial owner under the Corporate Transparency Act?
The Beneficial Ownership Information report is required by a federal law called the Corporate Transparency Act (CTA). A BOI report must provide, among other things, information about all of the company’s beneficial owners. Hefty civil and criminal penalties can be imposed on companies that fail to file a complete report.
Compliance with the BOI reporting requirement will require an understanding of who is considered a beneficial owner under the CTA. The definition of “beneficial owner”, as outlined in the final reporting rule issued by FinCEN implementing the BOI reporting requirements of the CTA, is discussed below.
Who is a beneficial owner?
A beneficial owner of a reporting company (as any entity required to file a BOI report is called) is defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25 percent of the reporting company’s ownership interests.
What is considered “substantial control”?
An individual exercises substantial control over a reporting company if the individual:
(A) Serves as a senior officer;
(B) Has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body);
(C) Directs, determines, or has substantial influence over important decisions made by the company, including decisions regarding:
(1) The nature, scope, and attributes of the business, including the sale, lease, mortgage, or other transfer of its principal assets;
(2) The reorganization, dissolution, or merger of the company;
(3) Major expenditures or investments, issuances of any equity, incurrence of significant debt, or approval of its operating budget;
(4) The selection or termination of business lines or ventures, or geographic focus;
(5) Compensation schemes and incentive programs for senior officers;
(6) The entry into or termination, or the fulfillment or non-fulfillment, of significant contracts;
(7) Amendments of any substantial governance documents and significant policies or procedures; or
(D) Has any other form of substantial control over the reporting company.
Who is a senior officer?
The term “senior officer”, for the purposes of determining if someone has substantial control, means any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function.
Control may be direct or indirect
An individual may exercise control directly or indirectly, including as a trustee of a trust or similar arrangement, through:
(A) Board representation;
(B) Ownership or control of a majority of the voting power or voting rights;
(C) Rights associated with any financing arrangement or interest in a company;
(D) Control over one or more intermediary entities that separately or collectively exercise substantial control over a reporting company;
(E) Arrangements or financial or business relationships with other individuals or entities acting as nominees; or
(F) Any other contract, arrangement, understanding, relationship, or otherwise.
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How is “ownership interest” defined?
The term “ownership interest” means:
(A) Any equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust (regardless of whether the instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights);
(B) Any capital or profit interest;
(C) Any instrument convertible into any share or instrument described in (A) or (B), any future on any such instrument, or any warrant or right to purchase, sell, or subscribe to a share or interest described in (A) or (B), regardless of whether characterized as debt;
(D) Any put, call, straddle, or other option or privilege of buying or selling any of the items described in (A), (B), or (C) without being bound to do so, except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company; or
(E) Any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.
Ownership may by direct or indirect
An individual may directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, relationship, or otherwise, including:
(A) Joint ownership with one or more other persons of an undivided interest in such ownership interest;
(B) Through another individual acting as a nominee, intermediary, custodian, or agent on behalf of such individual;
(C) As trustee, grantor, settlor, or beneficiary of a trust or similar arrangement that holds such ownership interest;
(D) Through ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control ownership interests of the reporting company.
Who is not considered a “beneficial owner”?
The term “beneficial owner” does not include:
(A) A minor child, provided the reporting company reports the required information of a parent or legal guardian;
(B) An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
(C) 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;
(D) An individual whose only interest is a future interest through a right of inheritance;
(E) A creditor of a reporting company.
What information about beneficial owners must be reported?
A reporting company must provide the following personal, identifying information about each of its beneficial owners in its BOI report:
- Legal name
- Date of birth
- Residence address
- Identifying number and issuing jurisdiction from a driver’s license, passport, or other authorized document
- Image of the document the number is from
When is the initial report stating beneficial owner information due?
Reporting companies created or registered before January 1, 2024 can file their report beginning on January 1, 2024. The report must be filed by January 1, 2025. Reporting companies formed or first registered on or after January 1, 2024 and on or before January 1, 2025 must file their initial report within 90 days of receiving actual or public notice of their formation or registration. Reporting companies formed or first registered on or after January 1, 2025 must file their initial report within 30 days of receiving actual or public notice of their formation or registration.
Summary
This article has provided a summary of how the final reporting rule implementing the Corporate Transparency Act defines “beneficial owner”. Consult the rule (31 CFR 1010.380, 87 FR 59498) for complete information. https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements
For more information, contact your CT Corporation representative or call 844-878-1400. Access more resources about the Corporate Transparency Act (CTA) or sign-up for CTA updates.