Corporate Transparency Act – Beneficial Ownership Information Reporting Requirements

Oct 10, 2022

On December 8, 2021, FinCEN (“FinCEN”) published its “Notice of Proposed Rulemaking” to provide the public with an opportunity to review and comment on its proposed rules implementing the Corporate Transparency Act’s (“CTA”) provisions requiring entities to report information about their beneficial owners, as well as information concerning the individuals who created such entity (such beneficial ownership information is hereinafter referred to as “BOI”).

On September 29, 2022, FinCEN issued its final rule (the “Rule”) implementing the CTA’s BOI reporting provisions. The Rule enables FinCEN and other national security agencies to help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activities while at the same time minimizes the burden on entities transacting business within the United States.

Effective as of January 1, 2024, all “reporting companies” (as defined below) created or registered prior to January 1, 2024, will have until January 1, 2025, to file an initial BOI report. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file an initial BOI report. Further, reporting companies will have 30 days to report changes to the information in a previously filed BOI report and must correct inaccurate information in previously filed BOI reports within 30 days of becoming aware of such inaccurate information.

The Rule requires “reporting companies” to file reports with FinCEN that identify two categories of individuals: (i) an entity’s beneficial owners; and (ii) the entity’s company applicants.

FinCEN identifies two types of reporting companies: domestic and foreign. A domestic reporting company includes a limited partnership, limited liability company, corporation, or any other type of entity that is created by filing a document with a Secretary of State or any similar office. A foreign reporting company includes a partnership, limited liability company, corporation or other entity that is formed pursuant to the laws of a foreign country that is registered to conduct business in any state by filing a document with a domestic Secretary of State or similar office.

As FinCEN recognizes that most trusts are not typically created by filing a formation document with a Secretary of State’s office, most trusts are excluded from being classified as a “reporting company.”

A beneficial owner includes any individual who, directly or indirectly, either: (i) exercises substantial control over a reporting company; or (ii) owns or controls at least 25 percent of the ownership interests of a reporting company. “Substantial control” includes any individual who is authorized to make important decisions on the entity’s behalf. The Rule closes potential loopholes previously allowing corporate structuring to obscure an entity’s owner.

A company applicant includes: (i) the individual who directly files the document creating the entity, or in the case of a foreign reporting company, first registers the entity to transact business within the United States; and/or (ii) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

Note, however, that the Rule does not require reporting companies that exist as of January 1, 2024, to identify and report its company applicants. Moreover, reporting companies formed or registered after January 1, 2024, do not need to update company applicant information.

In its BOI report, a reporting company will identify its name and report four items of information about each of its beneficial owners: (i) name, (ii) date of birth; (iii) address, and (iv) a unique identifying number and issuing jurisdiction from an acceptable identification document. The Rule also requires that reporting companies created after January 1, 2024, must provide the four items of information and document image for company applicants. If an individual directly provides the above-referenced four items of information to FinCEN, such individual may obtain a “FinCEN identifier,” which can then be provided to FinCEN on a BOI report in lieu of the other required information.

According to FinCEN, there will be two additional rulemaking processes in order to implement the CTA. These additional rulemakings will be to: (i) establish rules for who may access BOI, for what purpose, and what safeguards will be required to ensure that such information is secured and protected; and (ii) revise FinCEN’s customer due diligence rule following the promulgation of the Rule.

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