Corporate Transparency Act Beneficial Ownership Information Reporting is now open to business entities formed in U.S.
By: Matt Dochnal

What is Substantial Control for Beneficial Ownership Information Report (BOIR)?

FinCEN, which a Bureau of the U.S. Treasury Department, uses the term “substantial control” to describe influence over decisions that are critical to a company’s business strategy. People with substantial control include a company’s senior leadership and any managers who act on behalf of the company.

Substantial control is an important business owners to know. Anyone who has substantial control over a business is considered to be a beneficial owner, and they need to be included in the company’s Beneficial Ownership Information Report (BOIR).

In this article, we cover what substantial control means exactly, and how you can identify who has substantial control in your company. 

What Does “Substantial Control” Mean? 

According to FinCEN’s guidelines for BOIR, individuals can exercise substantial control over a reporting company in four different ways. Anyone who falls into one of the following categories has substantial control and needs to be reported as a beneficial owner: 

1. ) Senior officers in the company. 

Senior officers make up a company’s leadership team and are responsible for making important business decisions. They often have significant influence over a company’s business strategy and operations.

Anyone with an officer title, like CEO, CFO or COO, needs to be reported as a beneficial owner.

2.) People with authority to appoint or remove senior officers or a majority of directors. 

Anyone with a say over who serves as a senior officer, or sits on a company’s board of directors, has substantial control. These individuals need to be reported as beneficial owners regardless of their role in the company.

3.) They are an important decision-maker for the company. 

Any one who has significant influence over important aspects of a business exercises substantial control and is a beneficial owner. 

These individuals generally have influence over decisions about a company’s business strategy, finances and structure. 

4.) They have any other form of substantial control over the company. 

FinCEN uses “substantial control” as a catch-all term to include any roles or responsibilities that are crucial to a company’s business strategy. Nearly anyone can be a beneficial owner in a reporting company if they have substantial control, regardless of their title. 

Examples of Substantial Control for BOIR

Beneficial owners with substantial control in a reporting company can have influence over any one of the following areas:

Business Decisions

People with substantial control have influence over important aspects of a company’s business, including: 

  • Deciding on the nature or scope of the business, 
  • Launching new products or services,
  • Hiring and firing managers and employees,  
  • Appointing or removing senior officers and directors,
  • Entering or terminating contracts on behalf of the company, and 
  • Any other strategic decisions.

Financial Decisions 

Substantial control includes influence over major financial decisions, like:

  • Opening bank accounts and signing checks for the company, 
  • Selling, leasing or transferring any major company assets,
  • Deciding on compensation or incentives for senior officers, 
  • Approving major investments or expenditures, and 
  • Influencing operating budgets, or
  • Anything similar.

Company Decisions

Substantial control includes important decisions about company structure, including: 

  • Dissolving, merging or restructuring the company,  
  • Amending corporate documents, like bylaws or incorporation documents, and
  • Influence over company policies or procedures. 

This is just a short list of some of the areas where beneficial owners can have substantial control. FinCEN chose to make their definition of “substantial control” broad. There are no hard-and-fast rules for determining whether someone has substantial control or not.

Business owners need to do a factual assessment of which individuals qualify as beneficial owners based on the criteria that FinCEN provides. 

Who are Senior Officers?

Senior officers make up a reporting company’s leadership team. These individuals are given specific titles due to the substantial control they have over important company decisions. 

Senior officers in a corporation typically hold titles like CEO, CFO or COO. Senior officers in an LLC are usually referred to as “LLC Managers”. 

Reporting companies need to be list anyone with one of the following officer titles as a beneficial owner: 

  • President, 
  • Chief Executive Officer (CEO),
  • Chief Financial Officer (CFO),
  • Chief Operating Officer (COO),
  • General Counsel (GC), or
  • Any similar title. 

Remember, anyone can be considered a beneficial owner if they exercise substantial control in the company, regardless of their title. 

Who are Senior Officers in an LLC?

LLC Managers are typically the senior officers in an LLC. Many LLC Operating Agreements use the term “LLC Manager” to describe individuals with similar responsibilities to senior officers. 

LLC Managers may even have specific titles. Most LLCs appoint a President, Treasurer and a Secretary. In a single-member LLC, all three of these roles are typically filled by the sole owner. 

LLCs need to report Managers as beneficial owners in the BOIR if they are able to act on behalf of the company. For example, if they are able to sign contracts or open business bank accounts. 

Other Forms of Substantial Control

Individuals can exercise substantial control over a reporting company either directly or indirectly through different types of contracts or arrangements. 

Someone can exercise substantial control by:

  • Sitting on the board of directors,
  • Controlling a majority of the voting power in the company, 
  • Controlling an intermediary entity, like a trust or holding company, or
  • Through any other contract or arrangement. 

Here’s an example. Business creditors may have substantial control over the company if they can potentially gain control over the company through an arrangement, like a loan covenant. These types of creditors need to be reported as beneficial owners 

Are Employees Beneficial Owners?

Regular employees don’t fall under the category of beneficial owners, even if they’ve been with the company for years or hold significant positions. You are not required to report employees in your BOI Report unless they are in top executive roles.

However, you do need to report employees if they have a say in making important company decisions. Any employee with “substantial control” over the company is a beneficial owner.

When it comes to the BOI Report, it’s not about the title an employee holds. What really matters is how much authority they have to make decisions for the business. FinCEN wants to know who’s really steering the company’s important decisions.

Why are Senior Officers Reporting for BOIR?

Senior officers play a pivotal role in a company’s operations, steering its future with their strategic decisions. This is exactly why they need to be included in BOI Reports.

FinCEN’s goal with beneficial ownership information reporting is clear: to identify the key decision-makers within a company. This initiative aims to shed light on the individuals with significant influence over the company’s direction and policies.