in 2021, Congress passing the Corporate Transparency Act, which requires every corporation, LLC or similar entity that meets the definition of a “Reporting Company” to make a filing with the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) identifying its beneficial owners or owners.
FinCEN issued proposed regulations on this rule December 7, 2021, Notice of Proposed Rulemaking to give the public an opportunity to review and comment on the proposed rule to implement the CTA’s beneficial ownership information (BOI) reporting provisions. The comment period for the NPRM is open for sixty days until February 7, 2022.
The proposed rule describes who must file a BOI report, what information must be reported, and when a report is due. Specifically, the proposed rule would require reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business.
FinCEN also put a FAQ on the internet:
- The proposed rule identifies two types of reporting companies: domestic and foreign. A domestic reporting company would include a corporation, limited liability company, or any other entity 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 would include a corporation, limited liability company, or other entity formed under the law of a foreign country and that is registered to do business in any state or tribal jurisdiction. Under the proposed rule and in keeping with the CTA, twenty-three types of entities would be exempt from the definition of “reporting company.”
- FinCEN expects that these definitions would include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities appear typically to be created by a filing with a secretary of state or similar office.
- Other types of legal entities, including certain trusts, would appear to be excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. FinCEN recognizes that the creation of many trusts does not involve the filing of such a formation document. The NPRM, however, seeks public comment on state and Indian Tribe law practices regarding trust formation to better understand and define the scope of the rule.
- Under the proposed rule, a beneficial owner would include any individual who (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The proposed regulation defines the terms “substantial control” and “ownership interest” and sets forth standards for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. In keeping with the CTA, the proposed rule exempts five types of individuals from the definition of “beneficial owner.”
- In defining the contours of who has “substantial control,” the proposed rule sets forth a range of activities that could constitute “substantial control” of a company. This list would capture anyone who is able to make significant decisions on behalf of the entity. FinCEN’s approach is designed to close loopholes that would allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking shell companies.
- In the case of a domestic reporting company, the proposed rule defines a company applicant to be the individual who files the document that forms the entity. In the case of a foreign reporting company, a company applicant would be the individual who files the document that first registers the entity to do business in the United States.
- In both cases, the proposed regulation specifies that anyone who directs or controls the filing of the relevant document by another would also be a company applicant.
Beneficial Ownership Information Reports
- When filing BOI reports with FinCEN, the proposed rule would require a reporting company to identify itself and report four pieces of information about each of its beneficial owners and company applicants: name, birthdate, address, and a unique identifying number from an acceptable identification document (and the image of such document).
- If an individual provides his or her BOI to FinCEN, the individual can obtain a “FinCEN identifier,” which can then be provided to FinCEN in lieu of other required information about the individual.
- The proposed regulations also include a voluntary mechanism to allow reporting of the Taxpayer Identification Number (TIN) for a beneficial owner or company applicant.
- Under the proposed rule, BOI report timing would depend on (1) when a reporting company was created or registered, and (2) whether the report at issue is an initial report, an updated report providing new information, or a report correcting erroneous information in a previous report.
- Domestic reporting companies created before the effective date of the final regulation would have a year to file their initial reports; reporting companies created or registered after the effective date would have 14 days after their formation to file. The same deadlines would apply to existing and newly registered foreign reporting companies.
- Reporting companies would have 30 days to file updates to their previously filed reports, and 14 days to correct inaccurate reports after they discover or should have discovered the reported information is inaccurate.