As we discussed last week, most Missouri HOAs and COAs are organized as nonprofit corporations that have not applied for, and may not be eligible for, tax-exempt status under Internal Revenue Code Section 501(a). As such, they may be considered "reporting companies" as defined in the Corporate Transparency Act (the "CTA"). That means they would be required to report their "beneficial owners" through the Beneficial Ownership Secure System ("BOSS").

In short, a beneficial owner is an individual who either (1) directly or indirectly owns 25% or more of the reporting company (the "Ownership Prong"), or (2) exercises "substantial control" over the reporting company (the "Substantial Control Prong"). Notably, there is no safe-harbor provision, so it may be better to err on the side of being over-inclusive in who the reporting company reports as a beneficial owner. Since most Missouri HOAs and COAs are organized as nonprofit corporations, there are, by definition, no actual owners. Therefore, there will be no beneficial owners under the Ownership Prong.

Missouri HOAs and COAs will, however, have beneficial owners under the Substantial Control Prong. The regulations provide that a person exercises substantial control if that person:

(A) Serves as a senior officer of the reporting company;

(B) Has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body);

(C) Directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding:

  • (1) The nature, scope, and attributes of the business of the reporting company, including the sale, lease, mortgage, or other transfer of any principal assets of the reporting company;
  • (2) The reorganization, dissolution, or merger of the reporting company;
  • (3) Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company;
  • (4) The selection or termination of business lines or ventures, or geographic focus, of the reporting company;
  • (5) Compensation schemes and incentive programs for senior officers;
  • (6) The entry into or termination, or the fulfillment or non-fulfillment, of significant contracts;
  • (7) Amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures; or

(D) Has any other form of substantial control over the reporting company.

HOAs and COAs that are considered reporting companies under the CTA will need to determine which senior officers, such as President, and which directors are considered beneficial owners under the Substantial Control Prong, by reviewing their respective governing documents and analyzing the relevant circumstances of each particular HOA or COA.

As we will discuss next week, the penalties for failing to report all of an HOA's or COA's beneficial owners can be severe.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.