Beginning January 1, 2024, many companies are mandated to provide the Financial Crimes Enforcement Network (FinCEN) with details regarding the individuals who ultimately possess or control them, known as Beneficial Ownership Information (BOI). This article provides a brief overview of how to identify the beneficial owners required to be reported in a BOI report, as well as the exceptions to BOI report.

1. Who Is a Beneficial Owner of a Reporting Company?
   
   A beneficial owner refers to an individual who exercises substantial control over the reporting company, either through direct or indirect means, or possesses ownership or control of a minimum of 25% of the reporting company's ownership interests.
   
   
2. What is ownership interest?
   
   An ownership interest generally refers to an arrangement that delineates ownership rights in the reporting company. Instances of ownership interests include equity shares, stocks, voting privileges, or any other method employed to establish ownership.
   
   In the case of disputed ownership, if the ownership of a reporting entity is in legal dispute and an initial BOI report has not yet been filed, the authorized representative of the entity shall comply with the requirements of the regulation by disclosing all natural persons exercising substantial control over the entity and natural persons owning or exercising control over at least a 25% ownership interest in the entity or having a legitimate claim to its ownership or control.
   
   If a reporting entity has filed a BOI report and the outcome of a legal dispute results in a change in beneficial ownership, such as the dismissal of certain individuals' claims of ownership or control, the company must file an updated Beneficial Ownership Information Report within 30 days of the resolution of the litigation.
   
   
3. What is substantial control?
   
   An individual may exercise substantial control over a reporting company in four different ways. An individual is considered to be exercising substantial control if he or she meets any of the following categories:
   
   

   (1)	The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
   (2)	The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
   (3)	The individual is an important decision-maker for the reporting company. 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.
   (4)	The individual has any other form of substantial control over the reporting company.

   
   
4. Who Qualifies for an Exception from The Beneficial Owner Definition?
   
   There are five instances in which an individual who would generally be considered a beneficial owner of a reporting company is eligible for an exception. In such instances, the reporting company is not required to disclose that individual as a beneficial owner to the FinCEN.
   
   

   (1)	Minor child If the individual is considered a minor according to the laws of the state or Indian tribe in which the domestic reporting company is established or the foreign reporting company is initially registered, the reporting company has the option to report information about the parent or legal guardian of the minor instead. Also, when the minor child reaches the age of majority, as defined by the law of the State or Indian tribe in which the reporting company was created or first registered, the exception no longer applies. At that time, if the individual is a beneficial owner, the reporting company must file an updated BOI report providing the individual’s own information.
   (2)	Nominee, intermediary, custodian, or agent The individual acts as a representative for the true beneficial owner, serving as their nominee, intermediary, custodian, or agent. It is important to recognize that individuals engaged in standard advisory or contractual services, such as tax professionals, are likely to fall within this exception. However, even in cases where this exception is applicable, the true beneficial owner must still be disclosed.
   (3)	Employee In general, the term "employee" refers to an individual who is under the authority and direction of an employer in terms of their work tasks and methods, and who can be terminated from their employment.  Additionally, the individual's substantial control or financial benefits from the reporting company are solely based on their status as an employee.  Furthermore, the individual does not hold a high-ranking position within the reporting company, as defined by roles such as president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer with similar responsibilities, regardless of their official title.
   (4)	Inheritor The individual's only interest in the reporting company pertains to a future interest acquired through inheritance, for instance, via a will that confers a future interest in the company.   Upon inheriting the interest, this exemption becomes inapplicable, and the individual may then be considered a beneficial owner.
   (5)	Creditor The term "creditor" refers to an individual who would qualify as a beneficial owner of the reporting company based solely on rights or interests related to the payment of a predetermined sum of money, such as a debt owed by the reporting company, or a loan covenant or similar right associated with the right to receive payment intended to secure or improve the likelihood of repayment. For instance, an individual falls under the creditor exception if they are entitled to receive payment from the reporting company to settle a loan or debt, provided that this entitlement represents the individual's sole ownership interest in the reporting company.

   
   
5. Special Rules for BOI Reporting
   
   

   (1)

   Reporting company is owned by exempt entity Companies do not need to report information about any beneficial owner whose ownership interests in a reporting company are held through one or more entities, all of which are themselves exempt from the reporting company definition. If this special rule applies, then you may report the names of all the exempt entities instead of information about the individual who is a beneficial owner of your company through ownership interests in those exempt entities. Example: A large operating company owns 50% of the ownership interests in your company. Large operating companies are exempt from the reporting company definition. Individual A owns 50% of the large operating company, and therefore owns 25% of the ownership interests in your company (50% × 50% = 25%). You may report the name of the large operating company instead of Individual A’s personal information.

   (2)

   Foreign pooled investment vehicle Companies do not need to report information about each beneficial owner and company applicant if the company was formed under the laws of a foreign country and would be a reporting company if not for the pooled investment vehicle exemption. If this special rule applies, one individual who exercises substantial control over the company must be reported and no company applicants need be reported. If more than one individual exercise substantial control over the company, information must be reported about the individual who has the greatest authority over the strategic management of the company.

Reference:
https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
https://www.fincen.gov/boi-faqs#D_11
https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports
https://www.fincen.gov/sites/default/files/shared/Corporate_Transparency_Act.pdf