On Thursday, September 29, 2022, the Financial Crimes Enforcement Network (FinCEN) announced its release of final rules to implement the Corporate Transparency Act (CTA). The CTA and FinCEN’s final rule are intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other unlawful activity. As directed by the CTA, FinCEN’s final rule requires domestic and foreign corporations, limited liability companies (LLCs) and other business entities created or registered to do business in the US to report beneficial ownership information (BOI) to FinCEN.

The rule is effective January 1, 2024, with companies organized or formed prior to that date having one year – until January 1, 2025 – to complete the initial filing. All other reporting companies will have 30 days after the date of formation to file with FinCEN.

As adopted, much of the final rule follows FinCEN’s proposed rules in December 2021. According to the Beneficial Ownership Information Reporting Rule Fact Sheet, the key elements of the BOI reporting rule are as follows:

Reporting companies

There are two types of reporting companies under the final rule:

  • Domestic reporting company - a corporation, LLC or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
  • Foreign reporting company - a corporation, LLC or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

FinCEN expects that this broad definition will also include many limited liability partnerships, limited liability limited partnerships, business trusts and most limited partnerships, as it believes such entities are created by a filing with a secretary of state or similar office.

Within this broad definition, there are 23 specific entities that are excluded from the definition of reporting companies. These exemptions include, but are not limited to:

  1. Public companies or issuers with a class of securities registered, or subject to periodic filings, under the Securities Exchange Act of 1934
  2. Governmental authorities
  3. Banks and their holding companies
  4. Credit unions
  5. Money services businesses registered with FinCEN
  6. Registered broker-dealers, securities exchanges or clearing agencies, and other Exchange Act registered entities
  7. Registered investment companies and registered investment advisers
  8. Venture capital fund advisers
  9. Insurance companies and state-licensed insurance producers
  10. Commodity Exchange Act registered entities
  11. Accounting firms registered under section 102 of the Sarbanes-Oxley Act of 2002
  12. Public utilities
  13. Financial market utilities
  14. Pooled investment vehicles operated or advised by a bank, credit union, registered broker-dealer, registered investment company, registered investment adviser, or venture capital fund adviser
  15. Certain tax-exempt entities and certain US persons assisting such tax-exempt entity
  16. Large operating companies with more than 20 US full-time employees, a physical office in the US, and more than $5 million in gross receipts or sales in the previous year, as reflected on tax documents filed in the US
  17. Certain subsidiaries of some of these exempt entities and
  18. Inactive entities.

(Note that we have consolidated certain of the 23 exemptions with groups of like entities, and each group may have additional qualifications or criteria necessary to meet the exemption.)

Beneficial owners

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 the reporting company. There are limited exemptions from this definition, as directed by the CTA, including for minors, nominees and custodians. In determining whether an individual exercises substantial control, the inquiry is intended to capture anyone who is able to make important decisions on behalf of the entity.

Company applicants

The rule defines a company applicant to be:

  • The individual who directly files the document that creates the entity or first registers the entity to do business in the US; and
  • The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

The final rule does not require the identification of a company applicant for reporting companies in existence as of January 1, 2024 – meaning companies will not have to go back and recreate who had the requisite authority at the time the company was formed. Additionally, reporting companies formed or registered after January 1, 2024, do not need to update company applicant information.

Beneficial ownership information reports

When filing BOI reports with FinCEN, the rule requires a reporting company to identify itself and report four pieces of information about each of its beneficial owners:

  • Name
  • Birthdate
  • Address
  • A unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document). An individual may also apply with FinCEN to obtain a “FinCEN identifier” to use in filings with FinCEN.

For reporting companies created after January 1, 2024, these four pieces of information and document image must also be provided for company applicants.

Any changes or corrections to information provided in previously filed reports must be filed within 30 days of the date of change or when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.

Timing

The effective date for the rule is January 1, 2024. Reporting companies created or registered before January 1, 2024 have until January 1, 2025 to file their initial reports. Reporting companies created or registered after January 1, 2024 will have 30 days after formation to file initial reports.