FinCEN Releases Beneficial Ownership Reporting Guidance

On September 18, 2023, the US Department of Treasury Financial Crimes Enforcement Network (FinCEN) published its Small Entity Compliance Guide.  The new FinCEN guide assists businesses in reporting beneficial ownership information (i.e., individuals who directly or indirectly own or control a company).  It provides a useful collection of

Corporate Transparency Act – Background

In September 2022, FinCEN published a final rule establishing beneficial ownership information requirements, as required by the Corporate Transparency Act. The final rule, which becomes effective January 1, 2024, will require most corporations, limited liability companies, and other business entities created in or registered to do business in the United States, to report information about their beneficial owners to FinCEN. The final BOI reporting rule is implemented in Section 6403 of the Corporate Transparency Act, with a stated purpose of improving the transparency of corporate structures and to discourage the use of shell corporations to moving illicit funds.

When are BOI reports due?

Reporting companies created or registered before January 1, 2024, are given extra time – until January 1, 2025- to file their initial reports.  However, reporting companies created or registered in 2024 will have 90 days after creation or registration to file their initial BOI reports.  Reporting companies created or registered to do business on or after Jan. 1, 2025, are required to file their initial BOI report with FinCEN within 30 days after its creation or registration is effective.

Conclusions

The CTA is likely to have significant implications for businesses as it imposes new burdens on entities formed or operating in the United States. Determining reporting obligations and exemption eligibility is a fact-specific analysis that will need to be done with respect to each entity’s unique circumstances. Moreover, monitoring of an entity’s operation and ownership will be ongoing as a change in operations or ownership may change reporting status.

In addition, for entities to be able to comply with the requirements under the CTA, there will need to be processes in place to gather, store, and report BOI. Operating agreements, subscription agreements, and similar documents will likely need to be revised to require that BOI is provided, and updated immediately upon any change, by beneficial owners, as well as authorizing the Reporting Company to share such information with FinCEN. Moreover, consequences for failure to comply with requirements to provide BOI need to be considered as the Reporting Company will be responsible for any penalties for a failure to comply.

Additional updates to follow.