Introduction
As part of the new Beneficial Ownership Information (BOI) reporting requirements, small businesses must identify individuals who exercise "substantial control" over their operations. But what does "substantial control" really mean? In this post, we’ll explain this concept in clear, simple terms to help you determine who needs to be reported.
What is Substantial Control?
Substantial control refers to the power to make significant decisions within a business. This doesn’t necessarily mean owning a large portion of the company—it’s more about who is in charge of the day-to-day and strategic decisions that guide the company’s direction.
Key Indicators of Substantial Control
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Senior Officers: People in positions like CEO, CFO, or President often have substantial control because they make critical decisions that affect the company’s operations.
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Board Members: Members of the board of directors can also exercise substantial control, especially if they have the authority to appoint or remove executives or influence major business decisions.
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Decision-Makers: Individuals who are involved in significant business decisions, such as approving major contracts, setting the company’s strategic direction, or managing key business relationships, are considered to have substantial control.
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Authority to Appoint/Remove Directors: If someone has the power to appoint or remove directors or senior officers, they hold substantial control over the company.
Why Substantial Control Matters
Identifying individuals with substantial control is important because it ensures that the true decision-makers behind a company are known. This transparency helps prevent misuse of business structures for illegal activities like fraud or money laundering. The File BOI reporting system walks you through the process so you don’t miss anything. You can also take our quiz to see if you even need to file!
Examples of Substantial Control
Let’s look at a few examples to make this concept clearer:
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Example 1: The CEO: Sarah is the CEO of a small tech company. She makes all the major decisions about product development, marketing strategies, and financial planning. Even though she doesn’t own any shares in the company, her role gives her substantial control over its operations.
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Example 2: The Silent Partner: John owns 10% of a restaurant, but he doesn’t involve himself in the day-to-day operations. Instead, he leaves all decisions to Maria, the restaurant manager. Maria doesn’t own any part of the business, but because she controls everything from hiring to purchasing supplies, she has substantial control.
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Example 3: The Board Member: Emily sits on the board of a small manufacturing company. She doesn’t hold an executive position, but she has the power to vote on key business decisions and influence the direction of the company. This gives her substantial control.
How to Report Substantial Control
When filing your BOI report, you need to include information about anyone who has substantial control over your business. This includes their:
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Full legal name
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Date of birth
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Residential address
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Identification number (like a driver’s license or passport number)
Make sure this information is accurate to avoid any compliance issues.
What If You Miss Reporting Someone?
If you miss reporting someone who has substantial control, you need to file an amendment to your BOI report as soon as possible. Failing to report correctly can result in penalties. The good news is that we make it easy to file today, when you file with us you will also have a chance to sign up for notifications to ensure you make any updates as needed!
Conclusion
Understanding who has substantial control in your business is key to complying with the BOI reporting requirements. By identifying and reporting these individuals, you help ensure transparency and contribute to the integrity of the business environment. Make sure you know who has substantial control in your business and include their details in your BOI report.
