Beneficial Ownership Reporting Guide
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Understanding Beneficial Owners and Company Applicants Under the Corporate Transparency Act

Meeting Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act requires organizations to submit information about their beneficial owners to FinCEN. Additionally, most entities formed in 2024 or later will need to submit information about at least one and at most two company applicants. This article describes both beneficial owners and company applicants and outlines the information that must be provided to FinCEN for each.

Beneficial Owners

A beneficial owner is any individual who owns at least 25% of an organization or has significant control over its operations. There is no limit to how many beneficial owners a legal entity may have. While ownership is easy to understand, the concept of substantial control is more complicated. Generally, an individual has substantial control if they fall into any of the categories below:

  1. Senior Officer - Individuals holding positions such as Executive Director/CEO, President, CFO, General Counsel, COO, or any other officer who performs similar functions.
  2. Appointment or Removal Authority - Anyone with the power to appoint or remove senior officers or the majority of the board of directors or similar body.
  3. Important decision-maker - Anyone who directs or significantly influences the essential decisions made by an organization. These decisions can be related to the organization's business nature, scope, and attributes. They may also include the selection or termination of business ventures, geographic focus, or significant contracts. Other decisions may involve compensation schemes and incentives for senior officers, sale or lease of assets, major expenditures or investments, equity issuance, incurring significant debt, operating budget approval, reorganization, dissolution or merger, amendments of substantial governance documents, including articles of incorporation, bylaws, and significant policies or procedures.
  4. Individuals with any other form of substantial control over the organization - Control exercised in innovative and unique ways can still be substantial. For example, flexible corporate structures may have different indicators of control than the ones mentioned above.

Exceptions to Beneficial Ownership

There are certain exceptions to the definition of beneficial ownership that limit the number of individuals that need to be reported. The CTA provides five exceptions to the beneficial owner definition, which are:

  • Minors
  • Nominees, intermediaries, custodians, or agents
  • Employees
  • Inheritors
  • Creditors

It's important to note that to qualify for an exemption, a beneficial owner must meet specific criteria. For example, in the context of BOI reporting, a person is only considered an employee if they meet the following requirements:

  • They are under the control and will of the employer, who has the power to discharge them.
  • Their economic benefits or substantial control over the company are derived only from their employee status.
  • They do not serve as the company's senior officer.

It's worth mentioning that some exceptions may have special rules that apply to them. For example, not reporting a minor's information does not mean that they can be completely excluded from the report. Instead, you must include the identifying information of a minor's parent or legal guardian in the report. When the minor reaches legal age, you must submit an updated BOI report that includes their information.

Company Applicant

First and foremost, company applicants are individuals. Companies or legal entities cannot be company applicants.

There are two categories of company applicants:

  1. Direct filer - The direct filer is the individual who directly filed the document that created the domestic legal entity, or the individual who directly filed the document that first registered a foreign reporting company. This individual would have physically or electronically filed the document with the secretary of state or similar office.
  2. Individual who directed or controlled the filing action - The other possible company applicant is the individual who was primarily responsible for directing or controlling the filing of the creation or first registration document.

The first category, direct filer, should be identified by all reporting companies formed on or after January 1, 2024. The second category is only required to be reported when more than one individual is involved in the filing of the document that created or first registered the company. No reporting company will have more than two company applicants.

Information Required to Complete the BOI Report

The same information must be reported about beneficial owners and company applicants. In addition to the details about the reporting company, the following information about beneficial owners and company applicants must also be provided.

  1. Full legal name
  2. Date of birth
  3. Complete current address - Report the individual’s residential street address, except for company applicants who form or register a company in the course of their business, such as paralegals. For such individuals, report the business street address. The address is not required to be in the United States.
  4. Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
    1. US passport
    2. State driver’s license
    3. Identification document issued by a state, local government, or tribe
    4. If an individual does not have any of the previous documents, a foreign passport