WHICH COMPANIES ARE REQUIRED TO FILE?
BENEFICIAL OWNERSHIP REQUIREMENTS So, who exactly is a beneficial owner of the company? The Act lists two criteria, each being sufficient on its own to meet the Act’s definition: 1. The first criteria being that the owner owns or controls at least 25% of the reporting company’s ownership. 2. The second criteria being that the owner exercises “substantial control” over the reporting company. This begs the question, what constitutes having “substantial control” over a company? It can encompass many different forms. It can mean serving as a company officer, having the power to appoint or remove members, making decisions for the company, and exercising “substantial influence” over the company’s important matters. In addition, the government can also look at other characteristics not listed to determine if an owner has “substantial control” over the company. Clearly, this definition is not entirely definite. Because Brandon, David, and Tony each own 1/3 of the LLC, they automatically meet the 25% requirement. They must report as individuals. On the other hand, Rob does not own any interest in the LLC. But because Rob serves as the manager and is thus a company officer of Larger Pockets, he must still report.
Under the Act, companies must file if they are either formed by filing a document with the secretary of state or similar tribal office, or formed in a foreign country that’s registered to do business in the United States. The Act also states many exemptions, most notably the “large operating companies” exemption. The requirements for being a “large operating company” include:
• Employing more than 20 full-time employees
• Accruing more than $5 million a year in gross receipts or sales
• Operating from a physical office in the U.S.
If your business meets these three criteria, you are exempt from filing.
While Larger Pockets meets two of the three requirements of a “large operating company,” it only employs 18 people. Thus, the exemption doesn’t apply to them. Larger Pockets must still report to FinCEN.
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