As part of our ongoing exploration of Beneficial Ownership Information (BOI) requirements, today we will examine the concept of substantial control and its implications for reporting companies under the Corporate Transparency Act (CTA).
Defining Substantial Control
An individual exercises substantial control over a reporting company if they meet any of the following criteria:
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- Senior Officer Role
The individual serves as a senior officer, such as the president, chief financial officer, general counsel, chief executive officer, or chief operating officer, or performs a similar function. - Authority to Appoint or Remove
The individual has the authority to appoint or remove key officers or a majority of the company’s directors (or equivalent governing body). - Decision-Making Authority
The individual plays a pivotal role in making significant decisions for the company. (Refer to Question D.3 for further details on what constitutes significant decision-making.) - Other Forms of Control
The individual wields any other type of substantial control as outlined in FinCEN’s Small Entity Compliance Guide (Chapter 2.1, “What is substantial control?”).
- Senior Officer Role
Practical Application
Understanding substantial control is crucial for identifying and reporting beneficial owners accurately. The breadth of this definition ensures that all individuals exerting influence over the governance or operations of a reporting company are appropriately captured within the BOI framework.
For instance, a company with a board of directors may need to evaluate whether individuals beyond the board—such as external advisors with decision-making power—fall under the definition of substantial control.
Why It Matters for Tax Professionals
Tax professionals play a vital role in guiding reporting companies through compliance requirements. By grasping the nuances of substantial control, professionals can help businesses:
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- Identify all individuals who meet the criteria for substantial control.
- Avoid penalties for incomplete or inaccurate BOI reporting.
- Ensure compliance with the CTA while maintaining proper documentation for audits or inquiries.
In an evolving regulatory landscape, understanding substantial control is key to accurate BOI compliance and safeguarding corporate integrity. Tax professionals must remain proactive in educating their clients and streamlining reporting processes.