Ultimate Beneficial Owner—Definition, Requirements, and More

Depending on the context, ultimate beneficial ownership can be defined in several ways. This might create some confusion that must be resolved, especially in light of the Corporate Transparency Act (CTA) taking effect on January 1, 2024.

The CTA requires companies to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Identifying your company’s beneficial owners is the first step to submitting an accurate report and avoiding CTA violations.

Our guide clarifies the ultimate beneficial owner definition to help you meet this new requirement without misunderstandings. You’ll also learn how Harbor Compliance can take BOI reporting off your hands to save you a significant amount of time.

What Is an Ultimate Beneficial Owner?

The most widely adopted definition of an ultimate beneficial owner might seem a bit obvious—it’s the person who “ultimately owns or controls a company.” This definition is quite general and vague, so it can be further specified in several ways depending on the context.

For example, when talking about banking, the ultimate beneficial owner is the individual who benefits the most from an initiated transaction. Still, this definition isn’t particularly relevant when it comes to a company’s structure, which is what you should focus on when reporting BOI to FinCEN.

From this perspective, beneficial ownership is defined through two criteria:

1. Percentage of ownership interests held by an individual
2. The amount of control over the company

As per the CTA, a beneficial owner is anyone who owns at least 25% of the company’s stock, voting rights, or other ownership interests. It can also be anyone without ownership who significantly controls a company’s overall operations. 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

Ultimate Beneficial Owner vs. Beneficial Owner

From the perspective of BOI reporting, the terms “ultimate beneficial owner” and “beneficial owner” are used interchangeably. In fact, the former isn’t used much at all since the CTA requires companies to include all beneficial owners in the report, regardless of the exact ownership percentage (exceeding 25%) or extent of substantial control.

Once you identify such individuals in your company, you must provide their identifying information in your BOI report. This is done to ensure more transparent business operations and prevent illicit financial activity.

How To Identify Beneficial Owners in Your Organization

If your organization has a complex ownership or leadership structure, identifying beneficial owners might not be an easy feat. FinCEN’s Small Entity Compliance Guide recommends starting by identifying those with different forms of substantial control.

Such control might be exercised directly in several ways, such as:

• Board representation
• Control of the majority of the company’s voting rights
• Significant influence on important decisions

Indirect substantial control also counts toward beneficial ownership. For example, an individual might control an intermediary that significantly controls the reporting company.

The next step is to determine the types of your company’s ownership interests, which can include:

• Stock, equity, and voting rights
• Capital or profit interests
• Convertible instruments
• Options or privileges

Once you’ve identified the applicable types of ownership interests, find everyone who holds them and determine the ownership structure. Doing so shouldn’t be a significant challenge, though it might take some time if there are numerous beneficial owners. There’s no upper limit you should report to FinCEN, so everyone who meets the aforementioned criteria needs to be included.

When you’ve identified your company’s beneficial owners, you can submit a BOI report. Note that the report must be kept accurate and current at all times, and failing to do so might expose you to civil or criminal penalties.

This might make BOI reporting quite stressful and time-consuming. If you need a more effortless way to ensure FinCEN has all the necessary information, Harbor Compliance can help.

Simplify BOI Reporting With Harbor Compliance

Harbor Compliance can take all the guesswork and hassle from the BOI reporting process to help you focus on impactful work instead of worrying about your regulatory obligations. Our BOI Reporting Service gives you a mostly hands-off way to meet the CTA requirements and ensure uninterrupted operations.

After the initial report is submitted, we’ll provide ongoing support to ensure all information is up-to-date and accurate. You won’t need to ponder whether any updates are overdue and can prevent the aforementioned violations and penalties.

Our service is available to all reporting companies, most notably:

• Small businesses
• Corporations and LLCs
• Multi-entity businesses
• Multinational companies
• Nonprofits that aren’t 501(c) exempt

Harbor Compliance—BOI Reporting Made Easy

According to FinCEN, it can take up to three hours per entity to submit your BOI report. With our BOI Reporting Service, you can let us take over the process and put this time to better use. The service is particularly valuable if you run a multi-entity organization, as you’ll save a considerable amount of time.

More importantly, we minimize the risk of forgetting to update your company’s BOI by sending you automated periodic reminders to check if any information needs to be changed. Many situations might call for an update, from changes in your company’s ownership structure to the expiry of documents provided as proof of identity.

You only have 30 days to update FinCEN on such changes, so we make sure you don’t overlook them. Harbor Compliance also sends up to four updates or corrections on your behalf per year, so you don’t need to do it manually.

You can also opt for our Records Manager add-on to track your company’s leadership and ownership information effortlessly. All the necessary information is kept in a centralized, user-friendly hub, ensuring a clear overview at all times.

How To Order the BOI Reporting Service

Signing up for the BOI Reporting Service only takes three steps:

1. Choose from three options based on your business structure and specifics:
1. Single business
2. Nonprofit that is not 501(c) exempt
3. Multiple entities
2. Enter your contact information and company details in the provided form
3. Check out and purchase the service

BOI Reporting FAQs

Here, you’ll see some commonly asked questions about BOI reporting. If you need additional information, you can check out FinCEN’s FAQ page or our extensive Harbor Compliance Information Center.

Enjoy Peace of Mind With Harbor Compliance

By partnering with Harbor Compliance, you’ll eliminate all uncertainty from the BOI reporting process and minimize the time and effort necessary to meet this requirement. Sign up for our BOI Reporting Service and rest assured that your company’s BOI will be reported and maintained efficiently.

If you need help meeting your other obligations, you can also do the following:

• Get a free Harbor Compliance Score™ to check your organization’s current regulatory standing.
• Reach out to us and inquire about our additional services.

Our award-winning compliance platform can help you stay on top of all the necessary regulations effortlessly—schedule a demonstration today to see how it works.