Understanding Beneficial Ownership

What is a Beneficial Owner?

A beneficial owner is an individual who either directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of its ownership interests.

Key Characteristics of a Beneficial Owner

• Substantial Control: A beneficial owner can exercise substantial control in four ways:
  • Being a senior officer.
  • Having authority to appoint or remove certain officers or a majority of directors.
  • Being an important decision-maker for the reporting company.
  • Having any other form of substantial control as explained further in FinCEN’s Small Entity Compliance Guide.
• Important Decisions: Important decisions include those about a reporting company’s business, finances, and structure.
• Ownership Interest: An ownership interest is generally an arrangement that establishes ownership rights in the reporting company. Examples include shares of equity, stock, voting rights, or any other mechanism used to establish ownership.

Exceptions from Beneficial Owner Definition

There are five instances where an individual who would otherwise be a beneficial owner of a reporting company qualifies for an exception:

• The individual is a senior foreign political figure.
• The individual is a publicly traded company or other publicly available information indicates the beneficial owners (e.g., through stock exchanges).
• A government agency has determined that identifying the beneficial owners would pose a risk to national security, international relations, or law enforcement.
• Identifying the beneficial owner is exempt due to certain U.S. laws (e.g., tax laws).
• The reporting company is a publicly traded company and the beneficial owners are identified in SEC filings.

Reporting Requirements for Companies Created or Registered in 2024 or Later

These companies must report their beneficial ownership information to FinCEN within 90 days of receiving actual or public notice of creation or registration, regardless of whether they cease to exist before their initial reports are due.