As previously discussed here, Congress enacted the Corporate Transparency Act (the “Act”) to require certain entities to file information about its beneficial ownership with the intent to prevent and combat money laundering, corruption, tax fraud and other illicit activity. Pursuant to the Act, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) has adopted regulations and will establish a private national database for the information collected.
FinCEN’s final rule is effective January 1, 2024. As this deadline approaches, we thought it would be helpful to take a deeper dive into the final rule to understand its requirements and exemptions. In the coming weeks, we will discuss various related topics including who is a beneficial owner, what entities are exempt and why to apply for a FinCEN identifier.
Who must file the report with FinCEN?
Each reporting company is responsible for filing accurate and complete information with FinCEN regarding the reporting company itself and the beneficial ownership of such company. An individual acting on behalf of the reporting company must certify that the information submitted is true, correct and complete.
A “reporting company” is “any entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or tribal jurisdiction,” and includes corporations, limited liability companies, limited partnerships and, where they exist limited liability partnerships. A reporting company can be either a domestic entity or a foreign entity formed under the law of a foreign country that registers to do business in any state or tribal jurisdiction.
A “beneficial owner” is any individual who, directly or indirectly, either exercises substantial control or owns or controls at least 25 percent of the ownership interests of a reporting company.
What information must be filed with FinCEN?
Reporting companies must provide identifying information about the company itself and its beneficial owners. If the company was formed on or after January 1, 2024, then the report must include information on the company applicant (as defined below) as well.
A reporting company must provide, its:
(i) full legal name,
(ii) all tradenames and doing business names regardless of whether such name is registered with any governmental authority,
(iii) current street address for the company’s principal place of business in the United States. If the company’s principal place of business is outside the United States, then the primary location in the United States where it conducts business. Companies cannot provide P.O. boxes or third party addresses (such as the address for the company formation agent),
(iv) jurisdiction of formation, whether state, tribal or foreign. Foreign reporting companies must also provide the jurisdiction where it first registered to do business in the United States, and
(v) taxpayer identification number.
For every beneficial owner, reporting companies must provide, his or her:
(i) full legal name,
(ii) date of birth,
(iii) current residential street address, and
(iv) the unique identifying number and the issuing jurisdiction from one of the following documents (including an image of such document): (a) a non-expired U.S. passport, (b) a non-expired identification document issued by a state, local government or Indian tribe, (c) a non-expired driver’s license issued by a state, or (d) if none of these documents have been issued to such individual, then a non-expired, foreign-issued passport.
Additionally, reporting companies formed on or after January 1, 2024, must provide the above information for every individual who directly files the document that creates the reporting company (the “company applicant”). If the company applicant formed or registered the company as part of their business, then the street address of such business may be provided instead of the company applicant’s residential street address.
When must the reporting company file the report with FinCEN?
Where must the reporting company file the report with FinCEN?
FinCEN is creating an online portal for reporting companies to provide the beneficial ownership information reports. It anticipates the online portal will be available starting January 1, 2024.
In the next few months, each entity that is a reporting company should collect the necessary information for itself and its beneficial owners. To ensure compliance with these regulations, all entities should review their internal procedures and organizational documents. Ideally, an entity’s corporate governance documents (e.g. shareholders’ agreement, operating agreement, partnership agreement, etc.) will require its owners to disclose the information described above.
For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner.