The Corporate Transparency Act (CTA) requires certain entities to submit beneficial ownership information (BOI) to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). On September 29, 2022, FinCEN issued a final rule outlining who must file a BOI report, what information must be reported, and when a report is due. The rule will become effective January 1, 2024. Here’s what you need to know:
Who: Reporting Companies
The rule applies to domestic and foreign reporting companies. Domestic reporting companies include any entity created by a filing with a secretary of state or similar office under the law of a state or Indian tribe. Foreign reporting companies include any entity formed under the law of a foreign country and registered to do business in the United States.
The rule also exempts 23 entities from the definition of a reporting company. The list includes public companies that file reports with the SEC, governmental authorities, banks, credit unions, investment advisors, securities brokers and dealers, tax exempt entities, insurance companies, public utilities, accounting firms, and large operating companies.
What: Information Required in Initial Reports
Reporting companies subject to the new rule are required to report about the company itself, the company’s beneficial owners, and the company’s company applicants.
Required Information About the Reporting Company:
- its full legal name,
- any trade or “doing business as” names,
- current address of:
- the principal place of business for a reporting company with a principal place of business in the United States, or
- the primary location in the United States for a foreign reporting company,
- the state, tribal or foreign jurisdiction of formation,
- for a foreign reporting company, the state or tribal jurisdiction where the company first registers, and
- the IRS Taxpayer Identification Number (TIN) or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.
Beneficial Owner. A beneficial owner includes any individual who exercises substantial control over the company, or who owns or controls at least 25% percent of the ownership interests of the company.
An individual exercises substantial control if the individual makes important decisions on behalf of the company. This includes an individual who:
- serves as a senior officer;
- has authority over the appointment or removal of senior officers or a majority of the board of directors or similar body;
- directs, determines, or has substantial influence over important decisions made by the reporting company, including but not limited to the reorganization, dissolution or merger of the reporting company, the selection or termination of business lines or ventures of the reporting company, and the amendment of any governance documents of the reporting company; or
- has any other form of substantial control over the reporting company.
An individual has an ownership interest in the company if the individual has any sort of contract, arrangement, or mechanism used to establish ownership, including equity, stock, capital, or profit interests.
Company Applicant. A company applicant includes the individual who is responsible for the formation of the company and the individual who directly submits the formation documents. For example, there may be an attorney primarily responsible for overseeing the preparation and filing of incorporation documents and a paralegal who directly files the documents. Here, the company would report two company applicants—the attorney and the paralegal.
Companies existing or registered prior to January 1, 2024 are not required to identify and report company applicants. Additionally, reporting companies formed or registered after January 1, 2024 are not required to update company applicant information after the initial report is filed.
Required Information About Beneficial Owners and Company Applicants:
- full legal name,
- date of birth,
- current address of:
- the business in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, or
- the individual’s residential street address in any other case,
- unique identifying number and the issuing jurisdiction from one of the following documents (and the image of such document):
- a non-expired passport issued to the individual by the United States,
- a non-expired identification document issued to the individual by a State, local government, or Indian tribe,
- a non-expired driver’s license issued to the individual by a State, or
- a non-expired passport issued by a foreign government, if the individual does not possess any of the other documents described.
When: January 1, 2024
The rule becomes effective January 1, 2024. A company created or registered before January 1, 2024, will have one year to file its initial report. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports.
If you have questions about the Corporate Transparency Act and how it applies to your company, please reach out to a member of the Fortis Law Partners corporate team or your principal contact at Fortis.