In January of 2021, Congress passed the Corporate Transparency Act (“CTA”) as a part of its annual National Defense Authorization Act. With the goal of combating money laundering, the financing of terrorism, and other illegal activities, the CTA sets forth requirements for many companies to disclose certain company information, including beneficial ownership information, to the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
On September 29, 2022, FinCEN released its final rule implementing the reporting requirements of the CTA. Beginning January 1, 2024, reporting companies will be required to file a beneficial ownership information report (the “BOI report”) with FinCEN. The BOI report is to contain company, beneficial owner, and, in the case of newly formed or newly registered entities, company applicant information.
Corporations, limited liability companies, and other similar entities created by the filing of a document with a secretary of state or similar office (such as limited partnerships, limited liability partnerships, and limited liability limited partnerships), that do not meet one of the twenty-three (23) exemptions listed in the CTA, will be considered a reporting company and therefore be required to file a BOI report. The exemptions provided in the CTA, including an exemption for large operating companies, cover entities that fall under other laws or regulations that require the reporting of similar information. The final rule defines a beneficial owner as any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company (is able to make important decisions on behalf of the reporting company), or (2) owns or controls at least 25% of the ownership interests of a reporting company. FinCEN limited the company applicant definition to up to two (2) individuals, the individual who directly files the document that creates or registers the company, and the individual who is primarily responsible for directing or controlling the filing. FinCEN also acknowledged the difficulty long existing entities might have tracking down company applicant information, and therefore removed the requirement of reporting the company applicant information for entities existing or registered before January 1, 2024.
For each beneficial owner and company applicant, the reporting company must report the individual’s (1) full legal name, (2) date of birth, (3) a unique identifying number from an acceptable identification document (such as a current passport or driver’s license) along with an image of such document, and (4) a complete current address. An individual may apply for a “FinCEN identifier” that may be listed on the BOI report in lieu of the required personal information. To obtain a FinCEN identifier individuals will still be required to disclose the information listed above, but it will be on an application separate from the BOI report. At this time there is no allowance for terminating one’s responsibility to FinCEN for a FinCEN identifier so individuals who obtain a FinCEN identifier will be required to keep their information current with FinCEN in perpetuity.
Reporting companies formed or registered before January 1, 2024 will have one (1) year to file their BOI report. Reporting companies created or registered after January 1, 2024, will have thirty (30) days after receiving notice of the creation or registration to file their BOI report. Reporting companies have thirty (30) days to report changes to the information in their previously filed reports and must correct inaccurate information within thirty (30) days of becoming aware of the inaccuracy. Reporting companies will not be required to update company applicant information but they must keep all other information in the BOI report current. FinCEN has made it clear that the reporting company is responsible for certifying that the BOI report is true, correct, and complete.
In addition to continuing to work out the details of the BOI report filing process, FinCEN is developing rules for who may access beneficial ownership information and will be revising their existing customer due diligence rules to better align with the CTA. FinCEN is also in the process of creating the Beneficial Ownership Secure System (“BOSS”), an electronic filing system to house the information submitted in each BOI report and they anticipate drafting FAQs and other educational materials regarding the reporting requirements. We understand that many of our clients have questions about the reporting requirements including whether Capitol Services will be offering the filings as a service. Rest assured that we are closely monitoring the regulations and the legal filings surrounding the CTA and will keep our clients up to date as we learn more and determine our approach.