A Certificate of Beneficial Ownership (CBO) form is a document required by financial institutions in which a legal entity discloses information and the identities of individuals considered to be beneficial owners? of the business. It is commonly used when obtaining financing and opening business bank accounts.
It’s deemed necessary by the Financial Crimes Enforcement Network (FinCEN), and its purpose is to prevent financial crimes such as tax evasion, terrorist financing, and money laundering. It must be filed by corporations, LLCs, and other similar legal entities operating within the US.
How a CBO form works and when it is used
A CBO form is typically supplied by the party requesting the information, such as a bank or lender. When presented with the form, the signer essentially needs to outline the ownership structure of the business entity and verify the beneficial owners within that legal entity.
That said, the individual who requested the loan or the account should verify and sign the form. This also applies to individuals with significant management responsibility, such as a CEO, CFO, COO, managing member, President, VP, and Treasurer. This essentially refers to anyone with significant authority to act on behalf of the legal entity and make decisions regarding financial relationships.
The form is used when
- A financial institution needs to verify ownership information before legally entering into a financial agreement; for example, if you’re planning on getting a small business loan, this form is one of many small business loan requirements necessary for the process
- You are applying for financing and opening bank accounts for your business
- Situations requiring the verification of ownership control within your business arise
Example of information required on a CBO form
As an example of what a common CBO form entails, here’s some information that you’re likely required to provide for each person named on the certification:
- Legal name
- Physical address
- Date of birth
- Social Security number
- Copy of government-issued ID
See FinCEN’s CBO form example for more details.
Common terms associated with a CBO form
There are common elements to a CBO form issued by financial institutions. These include the following:
- Beneficial owner: This represents a person or entity that owns or controls a percentage of a business entity. These individuals have power within the company to make decisions and are considered those with 25% or more ownership.
- Legal entity/entity type: This represents business structures such as a corporation, a partnership, and an LLC. A legal entity excludes sole proprietors and unincorporated associations.
- Ownership percentage: This is the amount of ownership an individual or entity has within a company.
- Control person: This represents a beneficial owner with significant influence and control over a company.
Frequently asked questions (FAQs)
If your LLC is seeking a loan or a business bank account, then yes. A CBO form will be legally required in the event of business financing or banking.
Beneficial ownership is verified through a variety of processes, including gathering information, verifying identities, researching ownership, and performing checks. A CBO form is just one method of verifying ownership.
Generally anyone who directly or indirectly owns 25% or more of a company is considered a beneficial owner.
Bottom line
A CBO form is essentially a document that outlines and verifies who exactly has what ownership percentage of a company and who controls it. It is collected when applying for financing or opening a business bank account and is required by FinCEN. If you’re looking into getting a small business loan, it’s likely you’ll be presented with this document, so be sure to prepare accordingly.
