Beneficial Ownership Information Reporting Under Corporate Transparency Act (CTA)
The final rule implementing the beneficial ownership information reporting requirements under the Corporate Transparency Act (CTA) was adopted in September 2022, with the regulations going into effect on January 1, 2024.
The CTA requires reporting of beneficial ownership information for certain types of corporations, limited liability companies, and other entities created or registered in the United States. FinCen. FinCen is a bureau of the U.S. Department of Treasury with its director appointed by the Secretary of Treasury and reports to the Treasury Under Secretary for Terrorism and Financial Intelligence. The duties of FinCen are to prevent financial crimes.
In response to criminal organizations, the CTA is intended to curb "money-laundering" through the use of legally formed entities to transfer illegal proceeds. Through the collection of information the CTA will provide local, state and federal government with information to combat criminal, terrorist, and corrupt practices from hiding illicit money or other property in the United States. The regulation, according to the final adopted release will "balance the need to protect and strengthen U.S. national security, while minimizing the burden on small businesses and reporting entities... The regulations will help protect U.S. national security, provide critical information to law enforcement, and promote financial transparency."
Beneficial Ownership Information (BOI) Reporting Requirements. CTA's new Section 31 U.S.C. 5336, is intended to enhance beneficial ownership transparency while minimizing the burden for small businesses and regulated entities. Each reporting company will submit to FinCen, for each beneficial owner and each individual who files an application to form a domestic entity or register a foreign entity to do business (company applicant), four pieces of information: "the individual full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document (e.g., passport), or the individual's FinCen identifier. The CTA provides that the information be kept confidential and restricted.
30-day Reporting Requirement for Newly Created or Registered Companies. A report must be file with FinCen no later than 30 days of the date it was created or registered as a foreign reporting company.
One (1) year Reporting Requirement for Existing Entities After Adoption of Rule. For existing entities they will have one (1) year from the effective date (January 1, 2024) to file their BOI reports.
The reporting entity is ultimately responsible for reporting the BOI regardless of any one individual filing a BOI report on behalf of itself.
Beneficial Owners Defined Final Rule. Final rule defining who is a "beneficial owner" is defined as "any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns at least 25 percent of the ownership interests of such reporting company." The adopted definition will include trustees of trusts who control the assets of trust (revocable, irrevocable etc...), with five (5) exceptions (minor child provided parent or guardian reports the information; intermediary, custodian or agent on behalf of another individual; an individual acting solely as an employee of a reporting company in specified circumstances; an individual whose only interest in a reporting company is future interest through the right of inheritance; and a creditor of a reporting company. The new section will include a "Definition of Substantial Control" to provide further guidance.
The final rules also clarified who is the reporting party when the entity uses a law firms and incorporation website. Further the final rule did not modify the definition of a "Reporting Company," preserving the requirement for all U.S. entities or foreign registered entities to file the BOI reports.
Please refer to the Federal Register for more information about the final rules adopted by FinCen and determine whether your entity will be required to file a BOI report in 2024. Link to Federal Register Final Rule CTA.