Beneficial Ownership for Non-Profit Organizations
In this Compliance Clip, Adam discusses the beneficial ownership requirements for non-profit organizations. He explains how there are two different types of non-profit organizations and each one has a different application to the beneficial ownership requirements. Further, Adam provides a common violation to look for when reviewing beneficial ownership for not-for-profit organizations.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about the beneficial ownership requirements for non-profit organizations. Beneficial ownership requirements have been around for a little while now, and we are still seeing some issues, especially relating to non-profit organizations, so I wanted to bring up the concern that we are seeing.
First of all, it's important to understand that there are two types of non-profit organizations. First of all, we could have an unincorporated association. An unincorporated association that is not registered with the state is a legal entity by nature, and sometimes, churches and other small non-profit organizations, maybe like homeschool groups, are unincorporated associations. They are considered to be non-profits, but they are not incorporated associations. If you recall from the beneficial ownership rules, unincorporated associations do not have to comply with the beneficial ownership requirements. Again, unless the state requires registration, and that is going to be state-specific, but typically your unincorporated associations have no registration requirements in most states, or at least quite a few states, and therefore, the beneficial ownership requirements do not apply to them.
The other type of non-profit is a non-profit corporation, or a not-for-profit that is incorporated with the secretary of state. Of course, the beneficial ownership rules do apply, but keep in mind that only the control prong applies to the beneficial ownership requirement rules because, under a non-profit, you're not going to have an owner, so the ownership prong is out the window, it does not apply. But what does apply is the control prong.
So, we have two types, and it's important to understand the difference, because, of course, one type, the unincorporated association, does not require beneficial ownership rules, but the non-profit corporation does require beneficial ownership, at least the control prong, and identifying who the beneficial owners are.
Now, the concern that we have seen, and is starting to become a common violation, is that sometimes, the members of the non-profit who open up the new account in your financial institution may not actually know if they are an unincorporated association, or a non-profit corporation. And I've seen this happen quite a few times, where a member opening a non-profit account with a financial institution, says, “I don't think we're incorporated, we're an unincorporated association,” but in fact, when you check the Secretary of State website, you can see that they are a non-profit organization, and they are, in fact, incorporated. So, it's important for you to train your staff to not only ask the person in front of them, but that person may not actually know. So what you should train your staff to do is to take a look at the Secretary of State website, and to search that non-profit and to see, if in fact, they don't show up, meaning that they're a unincorporated association and beneficial ownership rules do not apply. But if they do show up and they're registered as a non-profit corporation, then you have to follow the control prong rules of the beneficial ownership requirements.
That's all I have for you today. I hope you enjoyed this Compliance Clip.