Who Has Substantial Control Under the CTA?
The Corporate Transparency Act (CTA) requires certain companies to disclose their beneficial owners by filing a Beneficial Ownership Information (BOI) form with FinCEN. A key part of this process is determining which individuals have “substantial control” over a company, a concept broader than just ownership. Substantial control ensures that anyone with significant influence over a business, even without formal ownership, is included.
Substantial Control Criteria
Substantial control under the CTA encompasses individuals who:
- Hold a senior officer role (e.g., CEO, CFO, COO),
- Have authority over important decisions like budgets or business operations,
- Influence the appointment or removal of key officers or directors,
- Direct the company’s activities in a substantial way.
This test is designed to identify those who play a major role in how a company is run, even if they do not own any equity.
Board Members and Substantial Control
Board members can present a nuanced situation under these rules. According to FinCEN’s FAQs, not all directors automatically meet the substantial control test. A board member would only need to be reported if they actively direct or influence company activities or decisions in a way that aligns with the substantial control criteria. However, in our experience, advisors are suggesting that boards with four or fewer members typically require all board members to file, given the higher likelihood that each member wields significant decision-making influence. Larger boards with more defined roles may require a more detailed analysis to determine whether individual members meet the substantial control threshold.
Implications for Businesses
For companies filing their BOI forms, this means carefully analyzing their corporate structure and identifying individuals who meet the ownership or substantial control thresholds. Missing or incorrectly including individuals can result in penalties, making it critical to get this step right. Counsel Club simplifies the process by offering a quick test to determine filing requirements and ensures compliance without the stress of navigating complex regulations.
