Corporate Transparency Act: Privately Held Companies Must Report Beneficial Ownership Information Starting in January 2024

Background 

In September 2022, the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) established beneficial ownership information (BOI) reporting rules for privately held companies pursuant to the Corporate Transparency Act of 2021. FinCEN implemented beneficial ownership information reporting rules to combat fraud, money laundering, and the use of anonymous shell companies to hide illicit funds.

These reporting requirements constitute a major change in disclosure requirements for private companies (such as corporations, limited partnerships, and limited liability companies) that until now have had a relatively high degree of privacy regarding beneficial owners’ identities.

Reporting Companies

Both domestic and foreign companies will be required to report beneficial ownership information. Domestic reporting companies include corporations, limited liability companies (LLCs), and other similar entities created by filing a document with a secretary of state or other similar office (e.g., limited liability partnerships, business trusts, limited partnerships, etc.). Likewise, foreign reporting companies are corporations, LLCs, or other similar entities that are formed under the laws of a foreign country and are registered to do business in the U.S. by filing a document with a secretary of state or other similar office.

Exempt Companies 

Under the rule, 23 different types of entities are considered exempt from BOI reporting:

1. Reporting companies pursuant to the Securities Act of 1934
2. Domestic governmental authorities
3. Banks
4. Domestic credit unions
5. Depository institution holding companies
6. Money transmitting businesses registered with the Treasury Department
7. Brokers or dealers in securities
8. Securities exchanges or clearing agencies
9. Other entities registered pursuant to the Securities Exchange Act of 1934
10. Registered investment companies and advisers
11. Venture capital fund advisers
12. Insurance companies
13. State licensed insurance producers
14. Entities registered pursuant to the Commodity Exchange Act
15. Accounting firms
16. Public utilities
17. Financial market utilities
18. Pooled investment vehicles
19. Tax exempt entities
20. Entities assisting tax exempt entities
21. Subsidiaries of certain exempt entities
22. Inactive businesses (must meet all of the criteria below)
    1. In existence for over 1 year
    2. Not engaged in active business
    3. Not owned by a foreign person
    4. Has not changed ownership or sent/received more than $1,000 in funds during the previous year
    5. Does not hold any type of assets
23. Large operating companies (must meet all of the criteria below)
    1. Employs more than 20 employees on a full time-time basis in the U.S.
    2. Filed U.S. federal income tax returns in the previous year showing more than $5 million in gross receipts or sales
    3. Maintains a physical office presence in the U.S.

Reporting Requirements

Reporting companies are required to file information identifying their “beneficial owners,” defined as individuals with direct or indirect “substantial control” over the company or who own at least 25% of the company’s ownership interests. Companies formed on or after January 1, 2024, will also need to disclose information about “Company Applicants.” Company Applicants are individuals directly responsible for filing the document that creates the company (or registers the company to do business in the U.S. in the case of foreign companies), as well as any person directing or controlling the filing or registration process.

Reporting companies are required to report identifying information about each beneficial owner and, if applicable, the Company Applicants by reporting four pieces of information for each individual: (1) full legal name; (2) date of birth; (3) current residential address or business street address; and (4) a unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a passport or a U.S. driver’s license) or a FinCEN identification number.

Companies formed prior to January 1, 2024, have until January 1, 2025, to file their initial beneficial ownership report while companies formed on or after January 1, 2024, will have 30 days to submit their initial beneficial ownership report, with the countdown triggered once the company receives notice that its creation or registration has become effective. Any changes or inaccuracies in beneficial ownership information must be reported within 30 days of the change occurring or the inaccuracy being discovered.

The database containing BOI will not be available to the public, but FinCEN is developing rules regarding who may access the BOI and for what purpose. The intent is that the BOI should be used only by governmental agencies to detect fraud or money laundering. Reporting companies will file their beneficial ownership information with FinCEN by using an electronic filing system called the Beneficial Ownership Secure System (BOSS), currently in development. FinCEN will not accept BOI reports before January 1, 2024.

If you have any questions regarding the requirements for the reporting of beneficial ownership or Company Applicant information, please contact Charles Hughes.