Corporate & Tax

by cstlaw

CORPORATE TRANSPARENCY ACT BENEFICIAL OWNERSHIP INFORMATION REPORTING

The Corporate Transparency Act was enacted in 2021 to require that every corporation or limited liability company under the laws of a State or Indian Tribe (not defined as an “exempt entity”) annually file a report with the Financial Crimes Enforcement Network (FinCEN) containing a list of the beneficial owners of the corporation or limited liability company that identifies each beneficial owner by:

1. Full legal name;
2. Date of birth;
3. Current residential or business street address; and
4. A unique identifying number from a non-expired passport issued by the United States, a non-expired personal identification card, or a non-expired driver’s license issued by a State;

If an individual beneficial owner decides to file their information to FinCEN directly, they may be issued a FinCEN Identifier number which can be provided on the report instead of the above required information.

The beneficial ownership information reporting requirements apply to domestic and foreign reporting companies, including Puerto Rico corporations and limited liability companies. A FinCEN Identifier number will be provided in the submission confirmation details provided to the reporting company after the Beneficial Ownership Information Report is accepted.

Beneficial Owner

A beneficial owner is any individual that, directly or indirectly, either:

1. Exercises substantial control over a reporting company, or
2. Owns or controls at least 25% of the ownership interests of a reporting company.

Company Applicant

A domestic or foreign reporting company organized or registered on or after January 1, 2024 is required to report its company applicants. Company applicants must be individuals.

A “company applicant” is (1) the individual who directly filed (physically or electronically) the document that formed or first registered the reporting company and (2) the individual primarily responsible for directing or controlling the filing action.

Due Date

Reporting companies with an organization date prior to January 1, 2024, will have until January 1, 2025 to file their initial beneficial ownership information report.

Newly formed entities (organized on or after January 1, 2024) will have 90 days to comply with the same requirement after the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

Reports must be updated within 30 days of a change to the beneficial ownership (e.g., through the sale of a business, merger, acquisition, or death), or 30 days upon becoming aware of or having reason to know of inaccurate information previously filed.

FinCEN will begin accepting beneficial ownership information reports on January 1, 2024 through the BOI E-Filing System website (https://boiefiling.fincen.gov).

Exempt Entities

The following entities are exempt from the beneficial ownership disclosure requirements:

1. an issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781) or that is required to file information under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d));
2. an entity established under the laws of the United States, an Indian Tribe, a State, or a political subdivision of a State or Indian Tribe, or under an interstate compact between two or more States, and that exercises governmental authority on behalf of the United States or any such Indian Tribe, State, or political subdivision;
3. a bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)), or section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a));
4. a Federal or a State credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752));
5. a bank holding company (as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841)) or a savings and loan holding company (as defined in section 10(a) of the Home Owners’ Loan Act (12 U.S.C. 1467a(a));
6. a money transmitting business registered with the Secretary of the Treasury under Section 5330;
7. a broker or dealer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)) that is registered under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o);
8. an exchange or clearing agency (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)) that is registered under section 6 or 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78f and 78q–1);
9. any other entity that is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
10. an investment company (as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3)) or an investment adviser (as defined in section 202of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(11))), that is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) or the Investment Adviser Act of 1940 (15 U.S.C. 80b–1 et seq.);
11. an investment adviser described under section 203(l) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3(l)) that has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the Securities and Exchange Commission;
12. an insurance company (as defined in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a–2));
13. an insurance producer that is authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State that has an operating presence at a physical office within the United States;
14. a registered entity (as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)), or a futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor (as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)) that is registered with the Commodity Futures Trading Commission, or a retail foreign exchange dealer, as described in section 2(c)(2)(B) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)) that is registered with the Commodity Futures Trading Commission (7 U.S.C. 1 et seq.);
15. a public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212);
16. a public utility that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States;
17. a financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2020 (12 U.S.C. 5463);
18. any pooled investment vehicle that is operated or advised by a person described in clause (iii), (iv), (v), (vi), (vii), (x), or (xi);
19. a church, charity, nonprofit entity, or other organization that is described in section 501(c), 527(e)(1), or 4947(a)(1) or (2) of the Internal Revenue Code of 1986 and exempt from tax under section 501(a) or 527(a) of such Code;
20. any entity that operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in clause (xix) that is a United States person, beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or lawfully admitted for permanent residence, and derives at least a majority of its funding or revenue from one or more United States persons that are United States citizens or lawfully admitted for permanent residence;
21. any entity that:
    1. employs more than 20 employees on a full-time basis in the United States;
    2. files income tax returns in the United States demonstrating more than $5,000,000
       in gross receipts or aggregate sales; and
    3. has an operating presence at a physical office within the United States; or
22. any corporation and limited liability company formed and owned by an entity described in this clause or in clause (i), (ii), (iii), (iv), (v), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvii), (xix) or (xxi);
23. any entity in existence for over one year that is not engaged in active business; is not owned, directly or indirectly, by a foreign person; has not experienced a change in ownership or sent or received funds in an amount greater than $1,000 (including all funds sent to or received from any source through a financial account or accounts in which the entity, or an affiliate of the entity, maintains an interest) in the preceding 12-month period; and does not otherwise hold any kind or type of assets, including an ownership interest in any corporation, limited liability company, or other similar entity; and
24. any entity or class of entities which the Secretary of the Treasury, with the written concurrence of the Attorney General and the Secretary of Homeland Security of the United States, has determined, by regulation, to be exempt.

Notwithstanding, if an exempt entity has a direct or indirect ownership interest in a reporting company, only the name of the exempt entity will be required to be listed in a report.

Penalties

Any person that willfully provides, or attempts to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, to FinCEN or willfully fails to provide complete or updated beneficial ownership information to FinCEN shall be subject to a civil and criminal penalties, including civil penalties of up to $500 for each day that the violation has not been remedied, or criminal penalties of a fine up to $10,000, imprisonment for up to two years, or both. Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required beneficial ownership information report.

If you have any questions or comments regarding these recent developments, please contact any of the following attorneys from our Tax & Corporate Practice Group at your convenience: