FinCEN’s Small Entity Compliance Guide published 9/18/23 defines a beneficial owner as any individual who, directly or indirectly: exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company. This means that an individual person may be a beneficial owner through substantial control, ownership interests, or both. It also means that an individual may have substantial control but no ownership.
The Guide outlines 4 General Criteria to determine if an individual exercises substantial control
An individual exercises substantial control over a reporting company if the individual meets any of four general criteria:
- The individual is a senior officer. A senior officer is any individual holding the position or exercising the authority of a:
- President
- Chief Financial Officer
- General Counsel
- Chief Executive Officer
- Chief Operating Officer
- Any other officer (regardless of the title) who performs a similar function as these officers.
- The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company. This means any individual with the ability to appoint or remove any senior officer or a majority of the board of directors or similar body.
- The individual is an important decision-maker. This is defined as any individual who directs, determines, or has substantial influence over important decisions made by the reporting company. This includes decisions on:
- Business: such as nature, scope, and attributes, selection or termination of business lines or ventures or geographic focus and the entry into or termination or the fulfillment or non- fulfillment of significant contracts.
- Finances: such as sales, lease, mortgage or other transfer of principal assets, major expenditures or investments, issuances of pay equity, incurrence of any significant debt or approval of the operating budget, compensation schemes and incentive programs for senior officers.
- Structure: such as: reorganization, dissolution or merger, amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws and significant policies or procedures.
- The individual has any other form of substantial control over the reporting company. This means any other form of substantial control over the reporting company including new and unique ways.
The Guide includes Six Yes or No Checklist Questions to determine substantial control
- Does your company have a president, chief financial officer, general counsel, chief executive officer, or chief operating officer?
- Does your company have any other officers that perform functions similar to those of a President, chief financial officer, general counsel, chief executive officer, or chief operating officer?
- Does your company have a board of directors or similar body AND does any individual have the ability to appoint or remove a majority of that board or body
- Does any individual have the ability to appoint or remove a senior officer of your company?
- Does any individual direct, determine, or have substantial influence over important decisions made by your company, including decisions regarding your company’s business, finances, or structure?
- Are there any other individuals who have substantial control over your company in ways other than those identified in 1-5 above?
What are important decisions?
Important decisions include decisions about a reporting company’s business, finances, and structure. An individual that directs, determines, or has substantial influence over these important decisions exercises substantial control over a reporting company.
Having substantial control equals having reporting responsibilities
Beneficial owners have reporting responsibilities to FinCEN defined as filing beneficial ownership information (BOI) reports. The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.
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