BOI filing for founders dividing ownership equally

Understanding Beneficial Ownership Information (BOI) Reporting for Equally Owned Companies The Corporate Transparency Act (CTA) mandates that many U.S. companies report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

This federal requirement, separate from state-level filings, aims to combat illicit financial activities. For founders who divide ownership equally, understanding these rules is crucial for compliance.

Who is a Beneficial Owner? FinCEN defines a beneficial owner as any individual who, directly or indirectly, either exercises substantial control over a reporting company OR owns or controls at least 25% of the company's ownership interests.

A company may need to report multiple beneficial owners under either of these two prongs. Substantial control can include senior officers (like CEO, president, CFO), individuals with authority to appoint/remove officers/directors, or those who make important decisions.

Equal Ownership Scenarios: Two Founders, 50% Each: In this common scenario, both founders qualify as beneficial owners under the ownership prong because 50% is greater than the 25% threshold. Both must be reported.

Additionally, if either founder holds a senior officer position or exercises substantial control, that serves as an independent basis for reporting. Multiple Founders with Shares Below 25% (e.g., Five Founders, 20% Each): In this case, none of the founders would meet the 25% ownership-interest prong.

However, the reporting company must still identify individuals who exercise substantial control. FinCEN expects every reporting company to report at least one beneficial owner or individuals exercising substantial control.

Jointly Held/Indirect Holdings: FinCEN requires aggregating direct and indirect ownership interests, including those held through intermediaries, options, convertible instruments, and nominees. This aggregation can cause an individual's total ownership to exceed 25% even if their direct share is smaller.

Company Applicant Information: Beyond beneficial owners, reporting companies must also provide information about the "company applicant" – the individual(s) who filed the company's formation or registration documents.

This includes their name, date of birth, current residential address, and an identifying document type and number with an image. Exceptions and Exclusions: FinCEN provides specific exceptions to the definition of a beneficial owner for certain large entities and categories.

Companies should carefully review these exceptions and not assume applicability without confirming compliance criteria. Filing Process, Corrections, and Penalties:

Understanding Beneficial Ownership Information (BOI) Reporting for Equally Owned Companies The Corporate Transparency Act (CTA) mandates that many U.S. companies report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

This federal requirement, separate from state-level filings, aims to combat illicit financial activities. For founders who divide ownership equally, understanding these rules is crucial for compliance.

Who is a Beneficial Owner? FinCEN defines a beneficial owner as any individual who, directly or indirectly, either exercises substantial control over a reporting company OR owns or controls at least 25% of the company's ownership interests.

A company may need to report multiple beneficial owners under either of these two prongs. Substantial control can include senior officers (like CEO, president, CFO), individuals with authority to appoint/remove officers/directors, or those who make important decisions.

Equal Ownership Scenarios: Two Founders, 50% Each: In this common scenario, both founders qualify as beneficial owners under the ownership prong because 50% is greater than the 25% threshold. Both must be reported.

Additionally, if either founder holds a senior officer position or exercises substantial control, that serves as an independent basis for reporting. Multiple Founders with Shares Below 25% (e.g., Five Founders, 20% Each): In this case, none of the founders would meet the 25% ownership-interest prong.

However, the reporting company must still identify individuals who exercise substantial control. FinCEN expects every reporting company to report at least one beneficial owner or individuals exercising substantial control.

Jointly Held/Indirect Holdings: FinCEN requires aggregating direct and indirect ownership interests, including those held through intermediaries, options, convertible instruments, and nominees. This aggregation can cause an individual's total ownership to exceed 25% even if their direct share is smaller.

Company Applicant Information: Beyond beneficial owners, reporting companies must also provide information about the "company applicant" – the individual(s) who filed the company's formation or registration documents.

This includes their name, date of birth, current residential address, and an identifying document type and number with an image. Exceptions and Exclusions: FinCEN provides specific exceptions to the definition of a beneficial owner for certain large entities and categories.

Companies should carefully review these exceptions and not assume applicability without confirming compliance criteria. Filing Process, Corrections, and Penalties:

Collect Information

Gather full legal name, date of birth, current residential address, unique ID type and number (e.g., passport, state ID), and a clear image of the ID for each beneficial owner and company applicant.

Submission

Use the FinCEN BOI reporting portal. Maintain internal records detailing how ownership percentages and control determinations were made.

Updates

If any reported information changes (e.g., ownership transfers, officer changes, corrected identifying info), updated BOI reports must be filed within FinCEN's specified timeframe. 4. Penalties: Willful failure to report or knowingly providing false/incomplete information can lead to civil and/or criminal penalties. Ensure owner cooperation and meticulous documentation. State-Level Considerations: BOI reporting to FinCEN is a federal mandate and is distinct from state formation and annual reports. State filings (e.g., with the Secretary of State) are still necessary for state-level registration and compliance. While some states may have their own transparency laws, the federal BOI report is submitted directly to FinCEN, and state registration documents do not substitute for this federal requirement. Practical Checklist for Founders Dividing Ownership Equally: For each individual, determine their direct and indirect ownership percentage (including options and convertible instruments) and whether they are a senior officer or exercise substantial control. If two founders each own 50%, prepare to report both as beneficial owners and collect their required identity documents. If ownership shares are less than 25%, determine if any founders are senior officers or exercise substantial control; report those individuals if applicable. If no one meets either prong, ensure the company applicant is identified and reported. Prepare an internal BOI compliance file, including copies of ID images, ownership percentage calculations, operating agreements or bylaws showing decision-making authority, and notes on any nominees or intermediary entities. For complex structures (e.g., multiple ownership tiers, trusts, foreign owners), consult legal counsel or a compliance provider. Evolving Rulemaking: FinCEN's rules have evolved, with legal challenges and clarifications occurring. Always rely on the most current FinCEN guidance (e.g., the Small Entity Compliance Guide and BOI FAQs) and monitor for updates. Conclusion: The FinCEN Small Entity Compliance Guide and related legal analyses provide the necessary framework for founders. The key takeaway for equally owned companies is that owners with 25% or more equity are beneficial owners. Even if ownership is below 25%, individuals exercising substantial control must be reported. The company applicant also requires reporting. Diligent collection of identity documents, accurate ownership calculations, and timely filing via FinCEN's portal are essential for compliance.