The Corporate Transparency Act (CTA) requires “reporting companies” to file a report with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) containing personal identifying information about the company’s beneficial owners and applicants. The information collected will be kept in a private database maintained by FinCEN with access limited to federal agencies, state agencies with a court order, and financial institutions with the consent of the company.
The details for how this reporting obligation will be implemented were left for FinCEN to provide through rulemaking. On September 29, 2022, FinCEN issued a final rule implementing the beneficial ownership (BOI) reporting requirements. The rule describes who must file a BOI report, what information must be reported, and when a report is due. The effective date for the final rule is January 1, 2024. Below is a summary of some of the major issues addressed by the final rule.
1. What is a “reporting company”?
A domestic reporting company is defined as any entity that is a corporation, a limited liability company, or is created by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe.
A foreign reporting company is defined as any entity that is a corporation, a limited liability company, or other entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe.
2. What entities are exempt from the definition of “reporting company” and therefore do not have to file a BOI report?
There are 23 exemptions. Most are for companies that are already subject to substantial federal or state regulation under which their beneficial ownership may already be known. This includes, among others, entities that file reports with the SEC, governmental authorities, banks, credit unions, money services businesses, investment advisors, securities brokers and dealers, tax exempt entities, entities assisting tax exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, inactive entities, subsidiaries of certain exempt entities, accounting firms, and large operating companies.
3. What is a “large operating company”?
The exemption for a “large operating company” is available to any entity that (1) employs more than 20 full time employees in the United States, (2) has an operating presence at a physical office within the United States, and (3) has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales on the entity’s IRS Form 1120 or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under Federal income tax principles.
The term “has an operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.
4. When is the initial BOI report required to be filed with FinCEN?
Any domestic reporting company created on or after January 1, 2024, must file a report within 30 calendar days of either receiving actual notice that its creation has become effective or the Secretary of State or similar office first providing public notice it’s been created, such as through a publicly accessible registry, whichever occurs first.
Any entity that becomes a foreign reporting company on or after January 1, 2024, must file a report within 30 calendar days of either receiving actual notice that it has been registered to do business or the Secretary of State or similar office first providing public notice it’s been registered, such as through a publicly accessible registry, whichever occurs first provides public notice, such as through a publicly accessible registry, that the foreign reporting company has been registered to do business.
A domestic reporting company created before January 1, 2024, and an entity that became a foreign reporting company before January 1, 2024, must file a report not later than January 1, 2025.
5. What information is required to be set forth in the initial report?
Information must be provided about the reporting company, its beneficial owners, and its company applicants.
A. Information about the reporting company:
(1) its full legal name,
(2) any trade or “doing business as” names,
(3) a complete current address consisting of: (i) in the case of a reporting company with a principal place of business in the United States, the street address of the principal place of business, and (ii) in all other cases, the street address of the primary location in the United States where the reporting company conducts business,
(4) the state, tribal or foreign jurisdiction of formation,
(5) for a foreign reporting company, the state or tribal jurisdiction where the company first registers, and
(6) the IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number) 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.
B. Information about each of the individuals who are the company’s beneficial owners and applicants:
(1) full legal name,
(2) date of birth,
(3) complete current address consisting of: (i) in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, the street address of the business, or (ii) in any other case, the individual’s residential street address,
(4) unique identifying number and the issuing jurisdiction from one of the following documents: (i) a non-expired passport issued to the individual by the United States government, (ii) a non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual, (iii) a non-expired driver’s license issued to the individual by a State, or (iv) a non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the other documents described, and
(5) an image of the document from which the unique identifying number was obtained.