BOI Report: Who is a beneficial owner for BOI reporting?
Mar 28, 2024
The beneficial ownership information (BOI) report identifies who owns or manages a business. The objective of the report is to control corrupt/illicit business activities run by shell companies.
All LLCs, corporations, and other businesses created or registered to do business in the United States must file a report unless they qualify for an exemption.
In this blog, we will understand who a beneficial owner is and how to identify the beneficial owner of a company.
Who is a beneficial owner for BOI reporting?
A beneficial owner of a legal entity is an individual who directly or indirectly:
They exert substantial control over the corporation or LLC.
They possess 25% or more of the entity's ownership interest.
They derive significant economic benefits from the entity's assets.
What does substantial control mean?
The rules of BOI reporting define an individual to have substantial control if they meet any of these four conditions:
Senior Officer: If the individual has the role of for example: Chief executive officer, President, Chief operating officer, or general counsel.
Appointment and removal authority: If the individual has the authority to unilaterally appoint or remove any senior officer or members of the board of directors of the reporting company.
Important Decision-maker: If the individual has the authority to determine or influence key decisions made by the reporting company.
Other substantial control: If the individual has any other form of substantial control mentioned in the BOI Small Entity Compliance Guide.
How do you define an important decision under substantial control?
A company's key decision-making aspects encompass various strategic, operational, and financial factors, including:
Business nature and assets: Selling, leasing, mortgaging, or transferring principal assets.
Structural changes: Reorganization, dissolution, or merger of the company.
Financial decisions: Significant investments, equity issuance, substantial debt incurrence, or approval of the operating budget.
Business directions: Selection or discontinuation of business lines, ventures, or geographic focus.
Executive compensation: Designing and implementing compensation schemes and incentive programs for senior officers.
Contract management: Entering, terminating, fulfilling, or not fulfilling major contracts. Governance.
Policy updates: Amending critical governance documents and significant policies or procedures.
Substantial control could be direct or indirect
An individual may exercise direct or indirect substantial control in various ways, such as:
Board representation: Participating as a board member.
Voting power: Owning or controlling a majority of the voting power or rights.
Financing arrangements: Having rights associated with financing arrangements or company interests.
Intermediary control: Controlling intermediary entities with substantial control over a reporting company.
Nominee relationships: Engaging in nominee arrangements or financial/business relationships with other entities.
Other agreements: Entering contracts, arrangements, understandings, or relationships that grant control.
What is “ownership interest”?
A party is considered to have an ownership interest in the reporting company if they possess:
Equities, stocks, or similar instruments. This includes pre-organization certificates, subscriptions, transferable shares, voting trust certificates, or certificates of deposit.
Capital or profit interests.
Convertible instruments, futures, warrants, or rights to purchase, sell, or subscribe to shares or interests.
Options or privileges to buy or sell items described above, excluding those created by third parties without the reporting company's knowledge or involvement. Any other instruments, contracts, arrangements, or mechanisms used to establish ownership.
How can ownership be either direct or indirect?
An individual may directly or indirectly own or control an ownership interest in a reporting company through various means:
Joint ownership: Sharing an undivided interest with one or more persons.
Nominee or agent: Having another individual act as a nominee, intermediary, custodian, or agent.
Trust or similar arrangement: Being a trustee, grantor, settlor, or beneficiary of a trust holding the ownership interest.
Intermediary entities: Owning or controlling intermediary entities that separately or collectively own or control ownership interests in the reporting company.
What is not considered a beneficial owner?
Exclusions from the term "beneficial owner" include:
Minor children (with parent or guardian information reported).
Nominees, intermediaries, custodians, or agents acting on behalf of another individual.
Employees whose control or benefits stem solely from employment status (excluding senior officers).
Individuals with only a future interest through inheritance rights.
Creditors of the reporting company.
BOI Report Conclusion:
Understanding BOI filing requirements and deadlines is essential for businesses subject to the CTA. By familiarizing yourself with the regulations, identifying your beneficial owners accurately, and filing reports promptly, you can ensure compliance and avoid potential penalties.
If you want to skip the headache and simplify the process, Commenda can help:
