Beneficial Ownership—Examples, Criteria, and Exemptions

Identifying beneficial owners is the first step to submitting a beneficial ownership information (BOI) report to the Financial Crimes Enforcement Network (FinCEN). Doing so is necessary to meet the Corporate Transparency Act (CTA) requirements, effective as of January 1, 2024.

There has been some confusion around the definition of beneficial ownership because certain criteria aren’t particularly precise. This guide clarifies the relevant requirements and offers some beneficial ownership examples to give you a clearer picture of what they mean in practice.

We’ll also introduce Harbor Compliance and explain how we can help with BOI reporting to ensure your reports are accurate and up-to-date at all times.

What Is Beneficial Ownership?

According to the CTA, beneficial ownership is defined through two criteria:

1. Owning at least 25% of the reporting company’s ownership interests
2. Having substantial control over the company

If an individual meets either of these requirements, they’re considered a beneficial owner.

The first criterion is relatively straightforward since you only need to calculate an individual’s ownership interests (stock, equity, voting rights, etc.). If it crosses 25%, their information must be reported to FinCEN.

It gets a bit more complex with substantial control because it’s not as easily quantifiable as ownership interests. As per the CTA, this criterion encompasses four types of individuals:

1. Senior officers
2. Those who can appoint/remove senior officers
3. Important decision-makers
4. Anyone who exercises other forms of substantial control over the company’s operations

Identifying individuals with substantial control might be challenging, but it’s crucial to get it right so that you can submit a complete BOI report.

Beneficial Owner Examples

Keeping the aforementioned criteria in mind, examples of beneficial owners are as follows:

1. The CEO, CFO, or another C-level executive
2. Nomination committee member
3. A shareholder owning 31% of the company’s stock
4. A manager who significantly impacts the nature and scope of a business

Note that the catch-all criterion can expand the beneficial ownership scope far beyond the listed examples. It’s also common for beneficial owners to meet both the ownership interest and substantial control criteria.

For example, let’s assume you act as the president of a corporation and own 60% of its stock. You share ownership with Individuals A and B, who own 30% and 10% of the stock, respectively. You also appoint Individual C as a senior vice president (SVP), and they don’t own any stock.

In this case, everyone is a beneficial owner except for Individual B since they neither have substantial control over the company nor exceed the 25% ownership threshold.

There’s no limit to the number of beneficial owners you can include in the BOI report, so make sure to identify all individuals who significantly impact your company’s operations. FinCEN’s Small Entity Compliance Guide offers a questionnaire you can complete to do this more easily.

Exceptions From the Beneficial Ownership Definition

In some cases, you may not need to report a beneficial owner’s information to FinCEN. The CTA highlights five exceptions from the beneficial owner definition:

1. Minor children
2. Nominees, intermediaries, custodians, or agents
3. Employees—in the BOI reporting context, an individual is considered an employee if:
1. They’re subject to the control and will of the employer, who has the power to discharge them
2. Their economic benefits or substantial control over the company are derived only from their employee status
3. They don’t serve as the company’s senior officer
4. Inheritors
5. Creditors

If someone who otherwise meets the criteria for a beneficial owner qualifies for any of these exceptions, their information doesn’t need to be included in the BOI report. Keep in mind that some exceptions might expire, in which case you might need to send an updated report.

For example, if someone is a minor at the time of the initial report and remains a beneficial owner when they reach legal age, you need to update FinCEN on this change and provide their information.

When Should You File Your BOI Report?

According to FinCEN, every reporting company needs to organize and submit its BOI report by the end of the year. To help you understand better, we’ll uncover and bust three BOI reporting myths:

Myth #1—“Reporting companies can file BOI reports at their convenience”

Fact—FinCEN has repeatedly stated that there will be no extensions to the set deadline or exemptions for any reporting companies. Taking things at your own pace can easily cause you to fall behind schedule, miss the deadline, and pay hefty penalties of $591 for each missed day (plus inflation).

Myth #2—“Collecting BOI data is a quick process”

Fact—Gathering information on beneficial owners and reporting companies can take more hours than you think. As per FinCEN’s data (from 4 million submitted reports), organizations take two to four months to collect their BOI data so you need to act NOW.

Myth #3—“Entities can file at the last minute if needed”

Fact—The majority of reporting companies submit their BOI reports during the final months, which is something that government portals aren’t built to handle. Last-minute filings will most likely lead to site crashes, which can cause you to miss the deadline.

The best way to mitigate the risks and ensure your BOI reports are submitted on time is to partner with a professional BOI reporting service provider like Harbor Compliance. Our platform lets entities easily centralize and update ownership information using a robust Records Manager, and our experts will file your BOI reports within 48 hours of receiving the information.

Act Now To Avoid Heavy Fines

Missing the deadline by just a few days will lead to astronomical fines for your company. Harbor Compliance submits all your BOI reports promptly and provides ongoing support for corrected or updated reports to help you save time and focus on your primary work.

Get the BOI Reporting Service From Harbor Compliance Here

Need Help Reporting BOI? Harbor Compliance Has a Solution

Reporting your company’s BOI and making sure it stays updated can nibble away at your time and focus. To make the process smooth and effortless, we offer a convenient BOI Reporting Service.

If you opt for the service, our team of experts will submit the initial report on your behalf. We can take care of up to four of your initial, corrected, and updated reports per year. You won’t need to file anything on your own, which is a significant time-saver—according to FinCEN, reading and completing the BOI report might take up to three hours per entity.

The initial report is only one part of our service. We’ll also provide ongoing support to help you keep your BOI accurate and up to date, so you won’t need to constantly think about whether you need to send an updated report. Failure to submit updates and corrections timely can expose you to civil or criminal penalties, which are outlined in the following table:

Why You Should Entrust BOI Reporting to Harbor Compliance

By outsourcing BOI reporting to us, you can focus on strategic decisions and core business operations instead of concerning yourself with the intricacies of the reporting process. You get a largely hands-off approach to meeting an important regulatory requirement and ensuring your company keeps operating without interruption.

After we submit the initial report on your behalf, we’ll send you automated periodic reminders to check whether any information needs to be changed. This way, you can rest assured you won’t forget to update FinCEN on any important changes and find yourself in violation of the CTA requirements.

Let us know when your BOI changes, and we’ll submit an updated report timely and efficiently. All updates and potential corrections are included in the flat annual fee, so you won’t incur additional expenses.

You can also opt for our Records Manager add-on to track your company’s ownership and leadership information in one place. The Records Manager can also be used to store corporate records, so you can have crucial information at your fingertips.

How To Order Our BOI Reporting Service

You can sign up for the BOI reporting service by completing the wizard. The first step is to choose from the three available options depending on your needs and business specifics:

1. Single business
2. Nonprofit that is not 501(c) exempt
3. Multiple entities

Select the applicable option, and you’ll be taken to a simple form asking you to enter your contact details and company information. After you’ve provided the necessary details, you can check out and order the service.

The only thing left to do now is to provide us with your company’s BOI. We’ll collect all the relevant information through a secure online platform and submit your initial BOI report. You’ll get a confirmation that the report has been filed, and you can enjoy the aforementioned ongoing support.

Robust Solutions for All Your Regulatory Obligations

Our service portfolio extends far beyond BOI reporting. Harbor Compliance is one of the nation’s leading providers of compliance solutions, so we can help you meet numerous other obligations effortlessly. Some of the main ways we can support your organization include the following:

• Entity lifecycle management—Our team can take over numerous tasks, from reserving a name and filing your initial or annual reports to DBA management, amendments, or even withdrawals.
• Document filing and retrieval—Harbor Compliance makes it fast and easy to submit your documents to the secretary of state or other governing bodies through the Drop-Off Filing Service. If you need a certificate of good standing or authority, certified copies, articles of reinstatement, and other important documents, we can obtain them on your behalf.
• Tax-related services—Whether you need to obtain an EIN, complete payroll tax registration, or register for sales and use tax, we’re here to expedite and simplify the process.
• Registered agent—Use our Registered Agent Service to let Harbor Compliance accept legal or government notices in your name and forward them to you swiftly. You can partner with us even if you already have a registered agent because we can help you change the agent without filing anything on your own.
• Business licensing support—Harbor Compliance can obtain general business licenses and various industry-specific ones (construction, engineering, and more).
• Nonprofit formation—If you need help with the nonprofit incorporation or charitable registration process, we can complete it for you and secure your 501(c) tax exemption.

BOI Reporting FAQs

Below, you will see some of the most commonly asked questions about BOI reporting. If you don't find what you're looking for, you can visit FinCEN’s FAQ page and our extensive Information Center to find resources on numerous additional regulatory matters.

Streamline BOI Reporting With Harbor Compliance

As a new and largely unfamiliar requirement, BOI reporting may be stressful and confusing. If you need a convenient and reliable way to submit your report and keep it updated, order our BOI Reporting Service today.

To assess your current regulatory standing and uncover any potential issues, get a free Harbor Compliance Score™. Should you need any help navigating your jurisdiction’s regulatory landscape, reach out to us and inquire about the additional services you saw here.

Besides a wide array of services, Harbor Compliance created an award-winning compliance platform that makes it easier to stay on top of all your obligations. Schedule a demonstration to see it in action.