Learn how a 1% owner can wield more power than a 99% shareholder under specific agreements.
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Quick Tax Tip
With Art Werner
CPE Today
In today’s complex regulatory environment, the term “beneficial ownership” might sound straightforward, but it encompasses far more than simply owning shares in a company. A beneficial owner holds a controlling interest in a business entity. This control might be linked to shared ownership, but it can also extend to individuals who influence decisions in other ways.
For example, under the Corporate Transparency Act, anyone owning 25% or more of a company is generally considered a beneficial owner. However, there are important exceptions that expand this definition.
Imagine this: You own 99% of a company, and your business partner owns just 1%. On paper, it seems like you hold all the power. But if a shareholder agreement specifies that your partner controls the board of directors, they effectively have the company’s reins. They can appoint officers and even assume the role of president, making them a beneficial owner under the law despite their minimal shareholding.
This example illustrates that beneficial ownership isn’t always about percentages. Instead, it’s about who has the authority to steer the ship.
Understanding beneficial ownership is critical for compliance with the Corporate Transparency Act and similar regulations. These rules promote transparency and prevent illegal activities like money laundering and fraud. Knowing who truly controls a business ensures greater accountability and builds trust with stakeholders.
The nuances of beneficial ownership are just one example of the intricate tax topics every practitioner needs to grasp. Whether you’re a seasoned professional or just starting in the field, clear and concise guidance can help you stay compliant and informed.