Are you an owner of a business? Do you know you may have to report information to FinCen regarding who has control or ownership of your company? It’s important to note that entities, whether recently formed or having been in business for decades are subject to beneficial ownership reporting.
I am recording a video series that will guide you to assist you in understanding your reporting requirements. In the last video, I explained which businesses are considered reporting companies and required to file a BOI report. Today’s topic will discuss how to identify those who must be reported as beneficial owners.
To comply with the Corporate Transparency Act (CTA), businesses must identify and report their beneficial owners. Let’s review the process:
Step 1: Determine if Your Company is a Reporting Company
As mentioned in the last video, there are two types of reporting companies. A Domestic Reporting Company is one created by filing a document with a state or similar office. A Foreign Reporting Company is any entity formed under foreign law and registered to do business in the U.S.
If you have formed an entity that would be subject to reporting, next Check for Exemptions that may apply to you. Certain entities, like publicly traded companies, government entities, and large operating companies, are exempt. In most cases, small businesses would not qualify, but you’ll want to make sure before you assume you must file.
Step 2: Identify Beneficial Owners
A beneficial owner is any individual who:
Exercises substantial control over the company, or
Owns or controls at least 25% of the company’s ownership interests.
Substantial Control Indicators include
Senior officers (e.g., CEO, CFO)
Authority to appoint or remove senior officers or a majority of the board
Directing or influencing significant decisions
Any other form of substantial control
Let me share some ownership interest factors. They include:
Equity stock or voting rights
Capital or profit interests
Convertible instruments
Options or other privileges to buy/sell ownership interests
Any mechanism establishing ownership
Step 3: Steps to Identify Beneficial Owners
Identify Individuals with Substantial Control: List senior officers and those with significant decision-making power. Examples include CEO, CFO, and other corporate officers).
Identify Individuals with Ownership Interests: List all ownership interests and the individuals holding them. For instance, if there are 3 owners, you’d list their names and the percentage of ownership they have in the company. Many times ownership is equal, so it might be in this case each owns 33.3%. Or there might be different amounts for each. In this case it could be one person owns 50%, one 30, and one 20%.
Calculate Ownership Percentages: Determine if any individual owns or controls at least 25% of the ownership interests. In the two examples I shared, each person with the 33.3% ownership would be listed and in the second example, the ones with 50% and 30% would be reported, but the one with 20% would not.
Step 4: Reporting the Beneficial Owners
The information you will be required to report for each includes:
Full legal name
Date of birth
Complete current address
Unique identifying number from an acceptable identification document such as a passport or driver’s license. You will also be required to upload a photo of the document.
By following these steps, you can identify your beneficial owners as required by the Corporate Transparency Act and ensure compliance with FinCEN’s reporting requirements. Failure to report timely can result in penalties of $591 per day.
If you need assistance with filing this report, we can help. Reach out to us at 310-534-5577 or [email protected] and we’ll make sure you are in compliance!
The next topic will cover the minor child exemption and who can report for them instead.
