Corporate Transparency Act: FinCEN Publishes Final Regulations on Beneficial Ownership Reporting


October 19, 2022

By: Eric R. Tubbs

For most business owners, the idea of money laundering or drug trafficking is the stuff of movies. Unfortunately, the crimes are real, so the U.S. Congress is taking steps to combat them. Those efforts will place a new requirement on many businesses to report certain personal information concerning owners of the company.

 

The Corporate Transparency Act (CTA) passed by Congress in early 2021 attempts to ensure businesses operating in the United States are legitimate entities. The goal is to prevent businesses from being used for illicit activities that might harm U.S. national security or financial systems.

 

To achieve that goal, a new rule from the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) (or see the fact sheet) requires companies operating in the United States to file a beneficial ownership information (BOI) report.

 

Below is a high-level summary of FinCEN’s final rule. This is the first in a series of articles introducing and explaining the final rule. Upcoming articles will examine many of these topics in greater detail and how they affect business owners, in-house counsel, banking, and other invested parties.

 

Who Must File a BOI Report?

In general, a BOI report is required to be filed by all “reporting companies.”

 

The rule classifies reporting companies into two broad categories:

  • Domestic
  • Foreign

 

In general, domestic reporting companies are defined as any:

  • corporation,
  • limited liability company (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.

 

Similarly, a foreign reporting company is 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. Registration is by filing with a secretary of state or similar office.

 

Both definitions also encompass:

  • limited liability partnerships,
  • limited liability limited partnerships,
  • business trusts, and
  • most limited partnerships.

 

Generally, the rule will apply to most small business, but the FinCEN rule does include exclusions that may be applicable to some companies.

 

When Do You File a BOI Report?

The effective date for the final rule is January 1, 2024. After the rule goes into effect, existing companies have one year to file an initial report.

  • For companies created before January 1, 2024, initial BOI reports are due January 1, 2025.
  • Companies created or registered after January 1, 2024, have 30 days after notice of creation or registration to file.

 

Changes in ownership or corrections of inaccurate information must be filed within 30 days after the reporting company becomes aware of the change or error.

 

What Is a Beneficial Owner?

Beneficial owners include any individual who, directly or indirectly:

  • exercises substantial control over the reporting company; or
  • owns or controls at least 25 percent of the ownership interests of the reporting company.

 

What Information Does a BOI Report Include?

Four pieces of information about each beneficial owner must be included:

  • name
  • birthdate
  • address
  • a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document). 

 

New companies also must include information about the company applicants. Company applicants are two individuals:

  • the person who filed the entity creation documentation (or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States); and
  • the person responsible for the filing.

For example, a company applicant might be the attorney who prepares the required paperwork and the associate or legal assistant who submits it.

 

What’s Next?

The beneficial ownership information report is the first step in implementing CTA requirements. FinCEN will continue rule-making with two more stages:

  • Establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected.
  • Revise FinCEN’s customer due diligence rule.

 

FinCEN will also be developing compliance and guidance documents to assist reporting companies in complying with this rule. As FinCEN provides more guidance and new issues develop, Nyemaster will provide insight and information.

 

For legal advice specific to your business, contact your Nyemaster attorney.