What is a Beneficial Owner?
A beneficial owner is someone who owns at least 25% of your business or exercises significant control over your business. Starting in 2024, businesses in the US will need to file a form with the Financial Crimes Enforcement Network (FinCEN) that identifies the business’s beneficial owners. Here’s how to identify who counts as a beneficial owner within your business.
In this article, we'll cover:
Legal Definition of Beneficial Ownership
Beneficial ownership means having majority control over a business. This could mean financial control greater than 25 percent, or even just decision-making influence over business operations.
Under the Corporate Transparency Act (CTA), an anti-money laundering law that goes into effect January 2024, business entities in the US, called reporting companies, must report beneficial ownership and company applicant information to the Financial Crimes Enforcement Network (FinCEN). This filing is called the Beneficial Ownership Information Report.
Who Counts as a Beneficial Owner?
Under the CTA, beneficial ownership is made up of two prongs: ownership and control. In other words, there are two factors you must consider when determining beneficial ownership—whether or not someone actually owns your business and if they have the power to make important decisions about it.
A beneficial owner is a person who:
- owns 25% of your business, or
- makes important business decisions or exercises control over your business
These two prongs exist to prevent people from taking advantage of workarounds. For example, an LLC might have three members—two who each own 20% membership interest and one who owns 60%.
Without the control prong of the definition, the members who own 20% of the business would not be considered beneficial owners. However, because they hold significant decision-making power within the LLC, these owners are absolutely considered beneficial owners under the CTA and must be included on the BOI Report.
The Ownership Prong
The definition of substantial control is broken up into two categories or prongs. The ownership prong focuses on who owns a significant percentage of your business (at least 25%). Under the ownership prong, a beneficial owner holds 25% of any of the following:
- Membership interest
- Voting power
- Equity, or the percentage of assets and interest owned
The Control Prong
The other way beneficial ownership is defined in the Corporate Transparency Act is by “substantial control.” Determining whether someone within your business has substantial control is less straightforward than identifying an ownership percentage. Chief officers, general counsel, and presidents count as beneficial owners. However, regardless of title, anyone with the ability to make major decisions at your business is considered a beneficial owner under this prong of the definition.
For example, a beneficial owner has the ability to:
- Hire and fire senior officers or board of directors
- Appoint management positions
- Dissolve the business
- Expand the business into a new state or jurisdiction
- Spend or move the business’s assets
Major decisions, under this part of the beneficial ownership definition, are concerned less with day-to-day operations and more with big-picture scenarios. So unless someone among your staff can decide to open a new location in another state or make a major purchase for your business, they’re not considered a beneficial owner under this part of the definition.
Beneficial Ownership of a Trust
A trust is an entity used to hold assets for the benefit of another entity (like an LLC). If you put your LLC into a trust, either trustees or grantors may be beneficial owners. Essentially, trustees and grantors are only beneficial owners if they exercise control over business decisions related to assets.
A trustee is someone who manages a trust. A trustee is a beneficial owner if they…
- Have control over trust property like buildings, houses, or cars.
- Are the only one who receives income from the trust.
- Can withdraw assets from the business, like money, leases, and credit cards.
A grantor is the person who created the trust. A grantor is a beneficial owner if they can revoke the trust or withdraw assets, like income and loans.
Who isn’t a Beneficial Owner?
There are some exceptions to who can be listed as a beneficial owner even if they do exercise control or own a substantial portion of your business. Individuals who can not be beneficial owners include:
- Anyone acting on behalf of another person, like outside lawyers, nominees, or relatives
- Employees who are not senior officers or do not have substantial control over the company
- Inheritors who will inherit interest or the business itself
*If a minor does own 25% of your company, you’ll need to provide their legal guardian’s information.
What’s the difference between beneficial owner and a company applicant?
An applicant or company applicant is the person who files your initial business entity formation documents with the state or jurisdiction. This may be someone within your business, but it doesn’t have to be.
Beneficial Owner Reporting Requirements
The information you’ll need to provide for each beneficial owner:
- Date of birth
- Street address (no registered agent addresses allowed)
- ID number from either a drivers license or passport
- Name of state or territory that issued the ID document
- Photo of your ID
FinCEN uses a secure and private government cloud-based database to store your information. You’ll sign up for an online account through FinCEN’s website and provide the above information for all beneficial owners.
How can a beneficial owner be identified?
Only state and government agencies, law enforcement agencies, and some financial institutions will have limited access to your information. The general public can not obtain your beneficial ownership information through FinCEN.
Beneficial Owner Exemptions
While all small businesses must report their beneficial owner information, there are a few businesses that do not need to file. Businesses and services that don’t have to file a report include:
- Any financial brokers and dealers
- Money transferring or transmitting services
- Certain banks and bank holding companies
- US government authorities
- Large companies with more than $5,000,000 in gross sales that have a physical operating office in the US and more than 20 full-time employees
Don’t think this means these businesses are excluded from giving their beneficial ownership information entirely, though. These businesses are already reporting their beneficial ownership information, just to a different agency.
Is there a fee for submitting beneficial owner information to FinCEN?
Not currently. As of right now, FinCEN is not requiring any filing fees but this may change as the law takes effect.
What’s the penalty for not reporting beneficial owners?
If you don’t file your BOI Report, you’re subject to a fine of $591/day up to $10k and could even face up to two years imprisonment.
Beneficial Ownership: Things to Know
Can I update the Beneficial Owner listed on my report?
Yes. After you’ve submitted your BOI Report, you have 30 days from the time the information changes to update the info in the system. You’ll use FinCEN’s secure filing system to submit and update all your information.
What is the deadline to file the Beneficial Ownership Information Report?
According to FinCEN, you must report your beneficial ownership information after January 1, 2024, and before January 2025 if you formed your domestic or foreign business before January 1, 2024. Businesses formed in 2024 have 90 days to file a BOI Report once their business is officially registered with the state, and businesses formed from 2025 on will have 30 days.
Do I have to file my Beneficial Ownership information myself?
No, you do not have to be the person physically filing your information. Whether you have someone else in your company file on your behalf or you have a secure company like Northwes file your BOI Report, as long as the information is accurate and submitted on time, it doesn’t matter.
*This is informational commentary, not advice. This information is intended strictly for informational purposes and does not constitute legal advice or a substitute for legal counsel. This information is not intended to create, nor does your receipt, viewing, or use of it constitute, an attorney-client relationship. More information is available in our Terms of Service.