What Does Expose to SBI Mean for Your Business?

Understanding Substantial Business Interest

The Corporate Transparency Act (CTA) was enacted to enhance transparency in entity ownership, aiming to combat illicit financial activities such as money laundering and terrorist financing. This legislation mandates certain companies to disclose information about their “beneficial owners” to the Financial Crimes Enforcemen Network (FinCEN). A beneficial owner is broadly defined as an individual who either exercises substantial control over a reporting company or holds at least 25% of its ownership interests.

The concept of “expose to SBI” refers to situations where an individual meets these criteria. On March 21, 2025, FinCEN issued an interim final rule that substantially narrowed beneficial ownership information (BOI) reporting requirements. This rule stipulates that U.S. domestic reporting companies and U.S. persons who are beneficial owners of foreign reporting companies are no longer required to submit BOI reports to FinCEN.

This means that the primary focus of these reporting obligations now rests on foreign entities registered to conduct business in the United States and their non-U.S. beneficial owners. While the direct reporting burden has been lifted for many U.S. businesses, understanding the underlying definitions of substantial business interest remains fundamental for comprehending the CTA’s framework. The detailed criteria for identifying beneficial owners continue to be relevant for those foreign entities still subject to reporting.

Defining Substantial Business Interest

A “Substantial Business Interest” (SBI) under the CTA is determined by specific criteria outlined in FinCEN regulations, particularly 31 CFR § 1010.380. An individual is considered to have an SBI if they satisfy either the “ownership interest” component or the “substantial control” component. This dual approach ensures that both direct financial stakes and significant decision-making authority are captured.

The ownership interest component focuses on an individual holding 25% or more of the ownership interests in a reporting company. Ownership interests are broadly defined to include equity, stock, voting rights, or a capital or profit interest. It also encompasses convertible instruments, warrants, options, or any other mechanism used to establish ownership, regardless of whether these are traditionally considered equity. This threshold can be met directly or indirectly, such as through a trust or an intermediary entity.

The substantial control component is equally comprehensive, recognizing that influence can exist without a direct ownership stake. An individual exercises substantial control if they directly or indirectly serve as a senior officer, such as a President, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, or General Counsel. This also includes any individual performing similar functions, regardless of their official title.

Substantial control extends to individuals with the authority to appoint or remove a majority of the officers or directors of the reporting company. It also includes those who direct, determine, or exercise substantial influence over important decisions made by the company. These decisions can involve the sale of principal assets, reorganization, significant expenditures, or the selection or termination of business lines. Furthermore, a broad “catch-all” provision covers any other form of substantial control over the reporting company.

Determining Who Has Substantial Business Interest

Identifying individuals with a Substantial Business Interest requires a careful application of both the ownership and control tests to the specific structure of a company. For the ownership test, companies must calculate direct and indirect ownership percentages. Indirect ownership can arise through various arrangements, including intermediate entities, trusts, or even nominee arrangements where one individual holds legal title on behalf of another.

When ownership is structured through a trust, for instance, the trustee with control over trust assets may need to be considered. Similarly, if a trust has a sole beneficiary, or if any beneficiary has a right to demand distributions or withdraw assets, those individuals may also be identified as having an ownership interest. It is important to trace beneficial ownership through complex structures to identify the ultimate individual owners.

Applying the control test involves assessing who truly holds decision-making power beyond formal titles. This means looking for individuals who, despite not being senior officers, can significantly influence important company decisions. Examples include a founder who retains significant operational authority even after stepping down from a formal role, or a general partner in a limited partnership who dictates strategic direction. The concept of “substantial influence” differentiates these individuals from those in mere advisory capacities.

Certain individuals are specifically excluded from the definition of a beneficial owner, even if they might otherwise meet some criteria:
Minor children (provided a parent’s or guardian’s information is reported).
Individuals acting solely as nominees, intermediaries, custodians, or agents on behalf of another individual.
Employees whose control is solely derived from their employment, and who are not senior officers.
Individuals whose only interest is a future interest through a right of inheritance.
Creditors of the reporting company.

Fulfilling Beneficial Ownership Information Reporting

Once individuals determined to have a Substantial Business Interest are identified, the next step for applicable entities is to fulfill the beneficial ownership information (BOI) reporting requirements. As of the March 21, 2025, interim final rule, these reporting obligations primarily apply to foreign entities registered to do business in the U.S. and their non-U.S. beneficial owners. The reporting process involves submitting specific details to FinCEN.

For each identified beneficial owner, the reporting company must provide:
Their full legal name.
Date of birth.
Current residential street address.
A unique identifying number from an acceptable identification document, such as a passport or state driver’s license, along with an image of that document.

The reporting company itself must also provide certain information:
Its full legal name.
Any trade names or “doing business as” (DBA) names.
Its principal place of business.
The jurisdiction of its formation.
Its taxpayer identification number (TIN) or employer identification number (EIN).

All reports are submitted electronically through FinCEN’s Beneficial Ownership Information E-Filing System. The submission process involves creating an account, navigating the online portal, accurately entering all required data, and then reviewing the information before final submission.

Initial reporting deadlines vary:
Foreign entities registered to do business in the U.S. on or after January 1, 2024, and before January 1, 2025, have 90 calendar days from their effective registration date to file their initial BOI reports.
Foreign entities registered on or after January 1, 2025, have 30 calendar days.
Any changes to the reported beneficial ownership information, or corrections to previously submitted data, must be filed within 30 calendar days of the change or discovery of the inaccuracy.