Control Person
An individual or entity whose ownership stake in, or authority over, a licensee is large enough to require regulatory disclosure, fingerprinting and background checks. Control usually arises from a threshold ownership percentage or from holding an officer or director position.
Also called: controlling person · 10% owner
Licensing regimes do not only assess a company. They assess the people behind it, on the reasoning that a money transmitter is only as trustworthy as whoever can decide where the money goes. The control person definition is how a statute settles which people that means.
How control is established
Two routes lead to the same status. The first is ownership: holding, directly or indirectly, a stated percentage of the licensee’s voting equity. Thresholds are commonly drawn at 10% or 25%, and which applies depends on the state and on the regime. Indirect ownership counts, so a person holding a majority of a holding company that owns the licensee is a control person of the licensee.
The second is authority. Directors, executive officers and anyone with power to direct the management or policies of the licensee are control persons regardless of shareholding. A chief executive hired on a salary and no equity is a control person. So, in substance, is an investor holding no shares but holding a contractual veto over who runs the company.
What follows from the status
Being named carries real obligations. Each control person files an individual record in NMLS, submits fingerprints for a criminal background check, and discloses employment history, financial history, litigation and any prior regulatory action. Those disclosures are personal and continuing — a control person charged with an offense after the license is granted generally has to report it.
The status is also what triggers change of control review. A transaction that moves someone across the threshold needs regulator approval, usually in advance, in every state where the company is licensed.
In practice
Thresholds and definitions differ by state and by regime, so the same person can be a control person in one state and not in another. Control can arise from officer authority or contractual veto rights alone, with no shares at all, which is why a cap table is never a sufficient answer to a regulator asking who controls the business.
Example
A payments company has a founder holding 60%, two funds holding 15% each, and a hired chief executive with no equity. Under a 10% threshold the founder, both funds and — through their own control persons — the funds’ general partners are all disclosed, and so is the chief executive on authority alone. The small angel investors below the threshold are not.
Commonly confused with
| Term | How it differs |
|---|---|
| Ultimate Beneficial Owner | UBO is an anti-money-laundering concept about who ultimately owns or benefits from a customer; control person is a licensing concept about who the regulator must vet before granting a license. |
| Change of Control | Control person identifies who counts as controlling the licensee, while change of control is the approval process triggered when that set of people changes. |
See also
- Change of ControlA change of control is a transaction that shifts ownership or control of a licensed entity past a regulatory threshold. It must be cleared with the regulator before completion, by approval in some regimes and by the regulator not objecting within a set assessment window in others. What is assessed is the incoming owners, not the deal.
- NMLS MU FilingsNMLS MU filings are the form set behind a US state license application: MU1 for the company, MU2 for each individual control person, MU3 for a branch, and MU4 for an individual licensee. They are four forms in one system, not four licenses.
- Ultimate Beneficial OwnerThe ultimate beneficial owner is the natural person who ultimately owns or controls a customer, identified by tracing ownership up through holding companies, trusts and nominees. Twenty-five percent is the common anchor in the United States, the United Kingdom and the European Union, but each states it differently and control is tested alongside it.
- NMLSNMLS, the Nationwide Multistate Licensing System, is the shared online system through which US state regulators accept, process and renew money transmitter and other non-depository license applications. One company record serves every state the applicant selects.