The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed beneficial ownership reporting requirements for private companies in December 2021. The final rules were adopted in October 2022 under the Corporate Transparency Act of 2019 (CTA). These regulations establish new federal filing requirements applicable to various entities, aiming to enhance national security and protect the financial system by providing crucial information to national security, intelligence, and law enforcement agencies.
Who Must Report
The final rules are broad and will affect most of the companies in the U.S., mandating corporations and limited liability companies to disclose information about their beneficial owners, with a few exceptions (discussed below). The rules cover both domestic entities and foreign entities doing business in the U.S.
For purposes of reporting, FinCEN defines a beneficial owner as an individual who exercises substantial control over the entity, owns 25% or more interest, or receives significant economic benefits from it. Entities forming corporations or limited liability companies must file beneficial ownership information (BOI) with FinCEN. Failure to provide complete or updated information, or submitting false or fraudulent details, can lead to fines and possible imprisonment.
How to Report
Reporting companies and beneficial owners must obtain a FinCEN identifier by providing the same information required for the initial report (as discussed below). The reporting company may include the beneficial owner’s FinCEN identifier in its report instead of providing the required information for the beneficial owner.
What to Report
Specific information must be reported, including legal names, trade names, addresses, jurisdiction of formation or registration, and identifying numbers for the reporting company. For individuals, full legal names, dates of birth, addresses, unique identifying numbers from identification documents, and other documentation must be provided.
Certain types of companies are exempt from the reporting requirements if they are already subject to substantial federal or state regulation, such as issuers registered with the SEC under the Securities Exchange Act of 1934, governmental authorities, banks, credit unions, money services businesses, securities brokers or dealers, investment companies or advisers, insurance companies, and others specified in the rule. There are also special rules for reporting under the following situations: companies owned by exempt entities, reporting on minor children, foreign pooled investment vehicles, and company applicants of existing companies.
The reported BOI will be part of a national database on corporate ownership. FinCEN is developing the Beneficial Ownership Secure System (BOSS) to ensure confidentiality and protection. Access to BOI will be strictly limited to a statutorily-defined group of governmental authorities and financial institutions, and only in certain circumstances. For example, federal agencies may only obtain access to BOI when it will be used in furtherance of a national security, intelligence, or law enforcement activity. For state, local, and tribal law enforcement agencies, a court of competent jurisdiction must authorize the agency to seek BOI as part of a criminal or civil investigation. With the consent of the reporting company, FinCEN may also disclose BOI to financial institutions to help them comply with customer due diligence requirements under applicable law. A financial institution’s regulator can also obtain BOI that has been provided to a financial institution it regulates for the purpose of performing regulatory oversight that is specific to that financial institution.
When to Report
The compliance effective date for the new rule is January 1, 2024, with entities created before this date having until January 1, 2025, to file their initial reports. Entities formed after January 1, 2024 will have 30 days after receiving confirmation of creation from the respective state or tribal office to file.
While the final reporting forms have not been published yet, updated or corrected reports must be filed within 30 calendar days after any changes in the reported information. Changes that require an updated report include qualifying for an exemption after the initial report, the death of a beneficial owner, the attainment of majority by a minor child, or changes in identifying document information. The CTA places the reporting responsibility on companies and requires accurate reporting, with updates when information changes.
Disclaimer
Austin Legal Group, APC (ALG) does not make any representations or warranties, expressed or implied, as to the accuracy, completeness or fitness for a particular purpose of this or any article. This article is meant for general informational purposes only and should not be construed as, and does not constitute, legal advice. No one should take any action regarding the information in this article without first seeking the advice of an attorney. This article does not create an attorney-client relationship. No attorney-client relationship will exist with ALG or any attorney affiliated with it unless a written contract is signed by all parties and any conditions in such contract are satisfied. Please reach out to Gina M. Austin, Esq. at (619) 924-9600 for more information.
