A COMPLETE GUIDE FOR IDENTIFYING BENEFICIAL OWNERS OF A REPORTING COMPANY: BOIR BASICS
Learn how to identify the beneficial owners in reporting companies with this comprehensive guide. Read it now to gain a better understanding
Starting on January 1, 2024, companies are obligated to report their Beneficial Ownership Information Report to FinCEN under the Corporate Transparency Act 2021. It is important to know about the reporting company’s Beneficial Owner in the Beneficial Ownership Information (BOI) report. A beneficial owner refers to an individual who enjoys the benefits of ownership even if the title to a certain property is under someone else’s name.
In this week’s BOI reporting series, we’ll learn who a beneficial owner is, how to identify one, and who does not qualify as one. This blog contains more information about the reporting company’s beneficial owners.
Who is termed as a beneficial owner?
As per FinCEN, a beneficial owner is termed as any individual or an entity that either directly or indirectly exercise:
- Substantial control over a reporting company or
- Own or Control 25% of the reporting company ownership interest.
The reporting company is permitted to have a maximum number of beneficial owners.
What is substantial control?
Companies must identify all the individuals who exercise substantial control over a reporting company. If an individual comes into any of the following mentioned categories then the individual exercising substantial control:
- Senior officer: The individual holding a key position like CFO, CEO, general counsel, or president.
- Appointment or Removal Authority: The individual can have the authority to appoint or remove any of the officers, or board of directors with similar positions in the reporting company.
- Decision Maker: The individual can make an important decision about the company’s finances, business operations, and structure.
- Other significant control: The individual has any other significant control over a reporting company. Control can be applied in various ways and can still be substantial.
What Does Ownership Interest Mean?
Companies are required to determine all individuals who own or control a 25% ownership interest in the reporting company. The reporting company can have various types of ownership interest which include stock or grants voting power or voting rights, any interest in the asset or profits of a reporting company, any convertible instrument, and any other instrument, contract, arrangement, or relationship used to establish ownership.
Steps to identify the beneficial owners of a reporting company:
The company must undergo the following steps to determine the reporting company’s beneficial owner:
Step 1: Identify individuals who directly or indirectly substantial control
To determine the direct ways of exercising substantial control
- Representation of Boards
- Voting power and voting rights of the owner or authority
- Rights associated with financing or interest
To determine the indirect ways of exercising substantial control
- Controlling one or more intermediary entities
- Through arrangements, financial, relationship, or otherwise.
Step 2: Identify individuals who directly or indirectly exercise own or control ownership interest and identify your company’s ownership interest type.
To determine the direct methods for exercising or controlling a reporting company
- Share ownership with a person or people
To determine the indirect methods for exercising or controlling a reporting company
- Owning or controlling one or more intermediary companies or taking the ownership interest of any intermediary companies
- Through another individual referring as a nominee, intermediary, custodian, or agent.
Step 3: After identifying what kind of ownership interest can apply to your company and who owns or controls it, you must determine who owns or controls 25% or more of those ownership interests.
Refer to the FinCEN guidelines to learn more in detail about “how to identify the beneficial owners”
Who is not eligible as the beneficial owners?
When an individual would generally qualify as an exception from being considered the beneficial owner of the reporting company, then the reporting company need not report that individual is a beneficial owner in its BOI report to FinCEN.
The following individuals need not to be reported as a beneficial owner.
Minor Child:
- Instead of providing the details of a minor child, the parent’s or guardian’s details have been submitted. Also, when the child reaches the majority age, this exemption no longer applies. During that period, a reporting company must file the updated beneficial ownership information.
Nominee, intermediary, custodian or agent:
- An individual filling the nominee, intermediary, custodian, or agent position.
Employee:
- An individual who is working as a full-time employee of your reporting company and should not be employed as a Senior officer, CEO, CFO, President
Inheritor:
- An individual providing their interest in the future to the reporting company through a right of inheritance. Once an individual invests their interest, this exemption no longer applies. Then, an individual becomes the beneficial owner of a reporting company.
Creditor:
- A creditor refers to an individual who would fulfill the definition of a beneficial owner of a reporting company.
Meet your BOI reporting with TaxBandits
Generally, identifying a beneficial owner is quite complicated. The above guidelines can help you determine the reporting company’s beneficial owner. You must submit the BOI report once you identify your company’s beneficial owner.
However, TaxBandits provides a streamlined solution for BOI filing. The user-friendly interface, along with the extensive features helps to submit the report without any complications and makes the BOI report more accessible. Our cloud-based software allows you to make an initial filing of your BOI report and for the updates and corrections to your BOI report. Also, give an instant update about the status of your BOI report.
Please stay connected with us in the BOI reporting series for the upcoming weeks to learn more about the information on Beneficial Ownership.
