FinCEN report logo-02

Beneficial Ownership Under the Corporate Transparency Act: The Capital Calculation Rules

Business owners and their lawyers need to understand the capital calculation rules for beneficial ownership reports under the Corporate Transparency Act.  These rules vary based on the form of the entity.

The CTA will require more than 35 million businesses to file a beneficial ownership information (BOI) report with FinCEN.  Each BOI report must provide specific items of personally identifiable information (PII) about each beneficial owner of the company.

Determining Beneficial Owners

A beneficial owner is an individual that either directly or indirectly (a) owns 25% or more of the ownership interest in the company, or (b) exercises substantial control over the company. 

The concept of percentage ownership may appear simple.  It may become complicated for reporting companies with complex ownership structures.

FinCEN’s regulation on BOI reporting (called the “Reporting Rule”) contains detailed requirements on calculating ownership percentages.  The rules vary based on the nature of the reporting company.  (See our summary of the Reporting Rule.)  

In this post, we will examine the distinction between the Partnership Capital Rule and the Corporate Capital Rule.

Calculating Beneficial Ownership under the Partnership Capital Rule

FinCEN’s Reporting Rule distinguishes between the test for calculating percentage for:

(1) reporting companies “that issue capital or profit interests (including entities treated as partnerships for federal income tax purposes)” and 

(2) those that are “treated as corporations for federal income tax purposes, and other reporting companies that issues shares of stock.”  See 31 CFR 1010.380(d)(2)(iii) (B)-(C) (emphasis added).

This distinction can appear vague.  Business lawyers in the U.S. are accustomed to distinguishing between entities taxed as partnerships and corporations.  And yet, FinCEN’s distinction is different.

FinCEN distinguishes between entities that “issue capital or profit interests,” parenthetically including partnerships, and those taxed as a corporation, parenthetically including those that issue shares of stock. 

In other words, the first set includes entities taxed as a partnership as well as other (non-partnership) entities that issue capital or profit interests. 

The second set includes both entities taxed as a corporation as well as those (non-corporation) entities that issue shares of stock.

The first set asks us to identify those entities that issue capital or profit interests that are not taxed as a partnership for U.S. federal income tax purpose.

The second set asks us to identify those entities that issue shares of stock that are not taxed as a corporation for U.S. federal income tax purposes.

Reporting Companies Subject to the Partnership Capital Rule

Reporting companies that are taxed as a partnership may include limited partnerships, limited liability companies that elect to be taxed as a partnership and some other entities.

Other reporting companies that issue capital or profit interests can include non-U.S. entities  doing business in the U.S.  

Tax attorney Julian Fortuna explained to me that Treas. Reg 301.7701-2 provides each business entity with two or more members must be classified either as a corporation or a partnership.  But, a business entity with only one owner may be classified either as a corporation or a disregarded entity. 

Treas. Reg 301.7701-2(b)(8) contains a long list of non-U.S. entities that must be taxed as a corporation.  These are called per se corporations.  Many non-U.S. entities excluded from this list are those that may issue capital or profits interests.  Consequently, many of these might fall under the Partnership Capital Rule.  Such examples include:

(1) a Sociedad de responsabilidad limited (or “SRL”), a type of “limited company” or “limited liability company” available in civil law jurisdictions including Mexico, Italy, Romania and the Latin American countries;

(2) a Gesellschaft mit beschrankter Haftung or “GmbH,” an German form that is roughly equivalent to a U.S. LLC; and

(3) a Private Limited Company (often identified by the suffix “Ltd.”), a UK form that is also similar to a U.S. LLC or limited partnership.

This is not an exhaustive list and there are certainly others.  Parties involved in CTA compliance may need to consult with tax counsel before deciding whether which rule to apply.

Reporting Companies Subject to the Corporate Capital Rule

The list of per se corporations in Treas. Reg 301.7701-2(b)(8) is long.  It includes:

  • Sociedad Anonima or Societe Anonyme (a form made available in several civil law countries including Argentina, Belgium, France, Mexico and others);
  • Aktiengesellschaft (a form made available in several German-speaking countries, including Austria, Germany, Liechtenstein and Switzerland); and
  • Public Limited Company (a form made available in many countries including Australia, Belize, Cyprus, Ireland, Israel, Malta, Pakistan and the United Kingdom).


Most reporting companies will consist of corporations, LLCs and limited partnerships formed in the U.S.  For these domestic reporting companies, the distinction between corporate and partnership taxation will lead either to the Partnership Capital Rule or the Corporate Capital Rule.  For other entities, and especially many foreign reporting companies, the reporting company may need experienced tax counsel when determining which rule to apply.