“Beneficial Owner” Analysis under the new Corporate Transparency Act

Starting January 1, 2024, the Corporate Transparency Act (CTA) will require most U.S. corporations, LLCs, and other legal entities formed through state filings or foreign entities registered to do business in the U.S. to file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN).

Compliance with the BOI reporting requirement requires a legal analysis of who is considered a beneficial owner under the CTA. The definition of “beneficial owner”, as outlined in the final reporting rule issued by FinCEN implementing the BOI reporting requirements of the CTA, is reviewed below.

Who is a Beneficial Owner?

A beneficial owner is any individual who:

• Exercises substantial control over the company, directly or indirectly. This includes senior officers, individuals who appoint/remove senior officers or board members, individuals who influence important decisions, or anyone with other significant control mechanisms.
• Owns or controls at least 25% of the company’s ownership interests. This includes equity, stock, capital or profit interests, convertible instruments, options, or any other mechanism establishing ownership. Options are deemed exercised, and ownership interests are aggregated for this calculation.

Control through Indirect Means:

Individuals can control ownership interests indirectly through contracts, joint ownership with others, nominees, intermediaries, custodians, agents, or ownership/control of intermediary entities.

Special Rules for Trusts:

For trusts considered beneficial owners under the ownership test, the following individuals are also considered beneficial owners:

• Trustees or those with authority to dispose of trust assets.
• Sole beneficiaries of income and principal.
• Beneficiaries have the right to demand substantial asset distribution.
• Grantors/settlers have the right to revoke the trust or withdraw assets.

Further Resources:

• Full Rule Text: https://www.federalregister.gov/documents/2021/12/08/2021-26548/beneficial-ownership-information-reporting-requirements
• Legal Counsel Advice: Consulting with a lawyer regarding these complex rules and their application to your specific company is highly recommended.

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