The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a new regulation requiring companies to file a report on information about their beneficial ownership. This rule is meant to assist authorities in counteracting money laundering, tax evasion, and other financial crimes. By implementing this regulation, the United States is now putting into effect a central register of beneficial ownership information that at least thirty other countries already have in place for the purpose of enhanced transparency. FinCEN estimates that tens of millions of organizations will be required to submit a Beneficial Ownership Information (BOI) report!
First things first—what is a beneficial owner?
What is a beneficial owner?
Under this FinCEN regulation, a beneficial owner is:
- someone who, directly or indirectly, exercises substantial control over the company
OR - Someone who owns or controls at least 25% of the ownership interests of the company.
Simply put, a beneficial owner is a person who enjoys the benefits of ownership and has the power to vote or influence decisions within the company. These decisions include those related to the nature and scope of the company’s business, major expenditures, and investments. Beneficial owners also have a say in the selection or termination of business lines or ventures, compensation schemes for senior officers, and amendments to governance documents. They can also impact decisions related to significant contracts that the company enters into or terminates. In short, beneficial owners have a considerable impact on the direction and overall success of the reporting company.
A beneficial owner may own or control one-fourth of the ownership interests of the company. Ownership includes things like stocks, joint ventures, profit interests, and options to buy or sell any of these things. In order to calculate whether an individual has at least 25% ownership interest in a company, consider the individual’s percentage of total combined voting power or total combined value of capital ownership or profit interests.
Most companies who are required to report will have simple organizational structures, making it a straightforward process to identify and report their beneficial owners.
Who is not a beneficial owner?
The rule exempts five types of individuals from the definition of “beneficial owner.” A beneficial owner is not:
- a minor child.
- someone acting as a nominee, intermediary, custodian, or agent on behalf of someone else.
- someone who is simply an employee of the company, excluding senior officers.
- someone whose only financial interest in the company is a future interest through a right of inheritance.
- a creditor of the company.
How is a beneficial owner different from a legal owner?
In most cases, the legal and beneficial owners of a company are one and the same, but there are some cases where the beneficial owner of an organization may desire anonymity, so they create or install a separate legal owner. There are instances where this practice is wholly legitimate, and some—less so. The practice of hiding beneficial ownership for nefarious purposes is what FinCEN is targeting with this reporting rule.
A beneficial owner is a person who enjoys the benefits of ownership even when the company, organization, account, or title is in another name. A legal owner owns the legal title of a property, while a beneficial owner is entitled to its benefits. When someone invests in publicly traded securities like stocks, their shares may be registered in the name of a broker for safety and convenience. Wealthy individuals often put their assets under trust, which means they are the beneficial owner of those assets even if they’re listed under someone else’s name.
A legal owner may hold shares for someone else, such as a parent who holds shares for their child, an executor who holds shares on behalf of an estate, or a trustee who holds shares for the beneficiaries of a trust.
SixFifty’s beneficial ownership worksheet
The legal experts at SixFifty have created a FinCEN Beneficial Ownership Worksheet to help you determine whether your business needs to file a FinCEN beneficial ownership report. This tool will walk you through a series of questions about your business just like a lawyer would, then let you know whether you need to report your ownership structure.
The FinCEN Beneficial Ownership Worksheet will serve as documentation proving that you took the obligation seriously—whether or not you find that you need to file a report. Print, sign, and retain the completed worksheet for recordkeeping purposes.
The FinCEN Beneficial Ownership Worksheet is available in the SixFifty Marketplace. For more information, or to see the Marketplace in action, request a free demo.