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FinCEN BOI: Who is a Beneficial Owner of Reporting Company?

The US Corporate Transparency Act aims to regulate unethical and fraudulent business operations carried out by front firms. The CTA attempts to prohibit the misuse of corporations and limited liability organizations for illegal benefits, including money laundering, fraud, financing of terrorism, and other activities through Beneficial Ownership Information Reporting. 

All LLCs, corporations, and other businesses formed or registered in the US must file a report unless they fall under an exemption. This will increase transparency in ownership structures and combat criminal activities. 

A company’s beneficial ownership information (BOI) report discloses who controls or manages it. Let’s understand who a beneficial owner is and how to identify a company’s beneficial owner.  

Who is considered a Beneficial Owner? 

In BOI reporting, a beneficial owner of a reporting company refers to an individual who enjoys the benefits of ownership or has control over certain assets, even if another person or entity holds the legal title to those assets. This includes individuals or groups who have the authority to make transaction decisions or exercise control over specific securities, such as shares in a company, whether directly or indirectly. 

An individual is considered a Beneficial Owner of a reporting company if directly or indirectly:  

  • They have substantial control over the LLC or business.  
  • They own at least twenty-five percent of the entity.  
  • They gain significant financial benefits from the entity’s assets. 

Individuals who are not eligible to be Beneficial Owners of a Reporting Company

Five types of individuals who do not qualify to become beneficial owners of a reporting company are: 

  1. A minor child (although the personal information of a parent/ guardian must be reported) 
  1. A nominee, intermediary, custodian, or agent of another individual 
  1. employee acting solely as an employee 
  1. An individual whose only interest in a reporting company is a future interest through a right of inheritance 
  1. A creditor of the reporting company 

Understanding Beneficial Ownership with Examples 

In cases where a custodian bank hold shares of a mutual fund, the actual owner is the beneficial owner, although the bank or broker retains the title for safety and convenience. 
Let’s take some other examples to understand: 

Direct Ownership: Rachel directly owns 30% of the shares in XYZ Firm, which makes her a beneficial owner of that company. 

Indirect Ownership: William Jones owns 60% of Company A, which in turn owns 47% of the shares in Company B. As a result, William indirectly owns 28.2% (60% of 47%) of Company B and is considered a beneficial owner of Company B. 

Control: David Brown has significant influence over a company’s decision-making processes, even though he does not own any shares directly. Since he exercises substantial control over the company, he is considered a beneficial owner of the company. 

Ready to File Your BOI Reports? 

Go to Tax1099’s dashboard, select BOI Reporting, and click on file BOI. 

Step 1  Enter Your Reporting Company Information. Here, you also have an option to request and receive your FinCEN Id for Free. 
Step 2  Choose “Initial Report” for first-time reporting or “Correct/Update Prior Report” for revisions. 
Step 3  Enter the required information from beneficial owners and company applicants (if applicable). 
Step 4  Verify all the details mentioned in the BOI form. 
Step 5  Complete all the fields, including first name, last name, email Id and check the ‘I Agree’ box to submit. 

Bottom Line?
To adapt smoothly to this shift of BOI reporting and comply with the regulations, businesses should take proactive measures and utilize eFiling software like Tax1099 to save hours on each reporting, keep sensitive data safe, and reduce risk of non-compliance.