The Substantial Control Test under the CTA: How to Deal with the Board of Directors
The Corporate Transparency Act (CTA) requires certain companies to disclose their beneficial owners to FinCEN by filing a Beneficial Ownership Information (BOI) form. A central aspect of this requirement is identifying individuals who meet the “substantial control” test, a concept designed to capture those who have significant influence over a company’s operations and decisions. While the rules clearly apply to senior officers like CEOs or CFOs, boards of directors present a more complex challenge.
Substantial Control Defined under the CTA
Substantial control under the CTA covers individuals who: (1) serve as senior officers, (2) direct or influence major business decisions, (3) have authority over the appointment or removal of officers or directors, or (4) exercise significant control over the company’s activities. For boards of directors, this means evaluating whether individual members are actively engaged in shaping the company’s operations or strategies in a meaningful way.
Challenges with Board Size
In our experience, advisors are finding that boards with four or fewer members often require all board members to be included in the BOI filing. Smaller boards tend to distribute decision-making authority more broadly across all members, increasing the likelihood that each individual meets the substantial control test. For larger boards, it’s more common to focus on specific roles—such as the board chair or executive committee members—who have a clear and substantial influence over the company’s activities. Passive or advisory directors without direct decision-making power may not need to be included.
Careful Analysis Required
For companies navigating this issue, it’s essential to assess the roles and responsibilities of each board member carefully. Missing or incorrectly including individuals in your BOI filing can lead to compliance risks and potential penalties. By thoroughly analyzing your board’s structure and activities, you can ensure compliance while avoiding unnecessary filings. Counsel Club simplifies this process with an easy-to-use platform that helps you determine who qualifies under the substantial control test, ensuring your filings are accurate and hassle-free.
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