Corporate Transparency Act: FinCEN's Final Rules, New Guidance on Beneficial Ownership Information Reporting

Description

The CTA was signed into law in January 2021, and in September 2022, FinCEN issued highly anticipated final rules implementing the beneficial ownership reporting requirements of the CTA. Then, on Mar. 24, 2023, FinCEN released the first set of guidance on the forthcoming BOI reporting rule requirements. Since that time, FinCEN has issued numerous updates to its initial guidance in the form of FAQs.

As of Jan. 1, 2024, most new and existing corporate entities in the United States are required to file reports on their beneficial owners with FinCEN. Beneficial owners are generally defined as individuals who own or control an entity, either directly or indirectly, which includes individuals who own 25 percent or more of the company, or any individuals who exercise substantial control over the entity. Reporting companies created or first registered before Jan. 1, 2024 have until Jan. 1, 2025 to file an initial report. Reporting companies created or first registered in 2024 have 90 days to file an initial report.

The reporting rules are designed to prevent financial crimes, including money laundering, corruption, and tax evasion. The final rules provide two categories of reporting companies: domestic and foreign. A domestic reporting company is defined as a corporation, LLC, or other 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 Native American tribe. A foreign reporting company is defined as a corporation, LLC, or other entity that is formed under the law of a foreign country that has registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar agency.

Although there are numerous exemptions from the reporting requirements, several domestic and foreign commercial groups with U.S. subsidiaries, private funds, pooled investment vehicles, trusts, and other entities will need to evaluate their specific circumstances to determine whether they meet any exemption criteria under the reporting rules. Large operating companies and publicly traded or regulated companies may likely meet one or more of the exemptions listed but are advised to review the final rules for guidance.

In light of the CTA's significant reporting requirements, counsel representing clients in forming new entities--and principals of existing companies--should prepare for the additional steps the law will add to the entity formation process and the new regulatory requirements. Further, counsel must be aware of and advise clients on the potential penalties for failure to comply with these new requirements.

Listen as our panel of experts offers a summary of the CTA and its current implementing regulations while shedding light on the various complexities, inquiries, and subtleties concerning the practical implementation of the CTA.