On September 30, 2022, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published its final regulations on Beneficial Ownership Information (BOI) Reporting Requirements. The regulations implement provisions of the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020. We reported on the proposed regulations in January of this year, and the final regulations generally adhere to the proposal.
The CTA and the implementing regulations address the lack of any centralized U.S. beneficial ownership registry. One of the CTA’s primary purposes is to ensure that law enforcement investigations do not run aground because of the government’s inability to determine who owns and controls legal entities involved in criminal activity. FinCEN has estimated that “[t]he number of legal entities already in existence in the United States that may need to report information on themselves, their beneficial owners, and their formation or registration agents pursuant to the CTA is in the tens of millions,”1 plus more than two million new entities each year.
The regulations will become effective January 1, 2024. In advance of that date, FinCEN will publish forms for use in filing the required reports. Failure to comply with the regulations may result in civil or even criminal penalties.
Below we address key questions regarding the scope of the regulations and definitions, as well as highlight notable changes and points of emphasis in comparing FinCEN’s proposal to the final regulations.
Who Must Report?
The regulations impose federal filing requirements on domestic and foreign “reporting companies.” In general, a legal entity created or registered via a state (or tribal) filing will be required to file a beneficial ownership report with FinCEN unless an exemption applies. The exemption list is comprised of 23 categories, covering mostly entities that are already subject to federal regulation. The exemption list is discussed further below.
Domestic Reporting Companies. “Domestic reporting companies” encompass corporations, limited liability companies, and other entities created by filing a document with a secretary of state or similar office under state or tribal law.
Foreign Reporting Companies. “Foreign reporting companies” encompass corporations, limited liability companies, and other entities formed under the laws of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or other similar office under state law or tribal law.
What Information Must Be Reported?
The CTA requires reporting companies to file identifying information about (i) the reporting company itself, and (ii) the reporting company’s “beneficial owners” and “company applicants.”
Information Regarding Reporting Companies. Reporting companies are required to file an initial report with FinCEN that contains the reporting company’s: (i) full legal name; (ii) any trade name or d/b/a name; (iii) current address (principal place of business street address for U.S. reporting companies, and street address of the primary U.S. location for all other companies); (iv) state, tribal, or foreign jurisdiction of formation; (v) for foreign reporting companies, the state or tribal jurisdiction where the company is registered; and (vi) the IRS taxpayer identification number (TIN), including an employer identification number (EIN), or if a TIN has not been issued for a foreign reporting company, the tax identification number issued by the foreign jurisdiction and the name of the jurisdiction.
Information Regarding Beneficial Owners and Company Applicants. A reporting company’s initial report to FinCEN must include the following information about each beneficial owner and company applicant (if applicable): (i) the full legal name of the individual; (ii) the individual’s date of birth; (iii) the individual’s current address; (iv) a unique identifying number from a non-expired government issued identification document; and (v) an image of the non-expired government issued identification document that includes the unique identifying number and a photograph of the individual.
Beneficial Ownership Definition. The final regulations define “beneficial owner” as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.” “Substantial control” is defined broadly to include a reporting company's senior officers and those individuals who have authority regarding the appointment or removal of any senior officer or a majority of the board of directors, as well as those individuals who have substantial influence over other important matters affecting the reporting company. “Ownership interest” is defined to include direct and indirect ownership interests, and includes equity, capital, and profit interests.
Company Applicant Definition. The term “company applicant” refers to the individual who files the documentation that creates or registers the reporting company or, if there are multiple people involved in filing the application documents, the person who is primarily responsible for directing or controlling the application.
Which Entities Are Exempt?
BOI Reporting Exemptions. The final regulations, implementing exemptions from the CTA, contain 23 exemptions from the definition of “reporting company.” Many of the exemptions are for entities in regulated industries, such as banks, credit unions, and depository institution holding companies; broker-dealers, registered investment advisers, and venture capital fund advisers; investment companies; pooled investment vehicles; and registered money transmitting businesses. Importantly, the final regulations retain generally unchanged (from the FinCEN proposal) the CTA exemption for “large operating companies,” which are defined in the final regulations as entities that: (i) employ more than 20 full-time employees in the U.S.; (ii) have an operating presence at a physical office in the U.S.; and (iii) have filed a federal income tax or information return in the U.S. demonstrating more than $5 million in gross receipts or sales.
Many start-up companies that do not meet the “large operating company” criteria will be required to file reports.
When Do the Regulations Become Effective?
The regulations are effective January 1, 2024. Reporting companies created or registered before January 1, 2024, have until January 1, 2025, to comply with the regulations. Reporting companies created or registered on or after January 1, 2024, will have 30 days after creation or registration to comply with the regulations.
What Has FinCEN Changed or Emphasized from the Proposed Regulations?
Noteworthy FinCEN changes or points of emphasis from the proposed regulations to the final regulations are as follows:
For more information on the BOI regulations, please contact Wilson Sonsini attorneys Stephen Heifetz, Mike Casey, Josh Gruenspecht, Amy Caiazza, Josh Kaplan, Troy Jenkins, or Jon Davey.
[1] Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 189 (Sept. 30, 2022).