Any individual who, directly or indirectly, can exercise substantial influence over the reporting firm is considered a “beneficial owner.” Chief Executive Officer, President, and General Counsel are all examples of such high-ranking personnel.
Anyone who possesses or exercises control over twenty-five percent or more of the voting stock or equivalent of the company is also considered a beneficial owner.
Each beneficial owner’s name, address, date of birth, and identification number (from a government-issued document such as a driver’s license) must be reported to FinCEN by the reporting company.
Any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines the terms “substantial control” and “ownership interest.” In keeping with the CTA, the rule exempts five types of individuals from the definition of “beneficial owner.”
In defining the contours of who has substantial control, the rule sets forth a range of activities that could constitute substantial control of a reporting company. This list captures anyone who is able to make important decisions on behalf of the entity. FinCEN’s approach is designed to close loopholes that allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking anonymous shell companies.
The rule provides standards and mechanisms for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. Among other things, these standards and mechanisms address how a reporting company should handle a situation in which ownership interests are held in trust.
These definitions have been drafted to account for the various ownership or control structures reporting companies may adopt. However, for reporting companies that have simple organizational structures it should be a straightforward process to identify and report their beneficial owners. FinCEN expects the majority of reporting companies will have simple ownership structures.
