- posted: Oct. 16, 2023
The U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”)
published its final rule on September 30, 2022 implementing the Beneficial Ownership
Information Reporting Requirements of the Corporate Transparency Act, added to the United
States Code as 31 U.S.C. §5336. They are intended to establish a legal framework for reporting
requirements for entities in the United States to help prevent and combat money laundering,
terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden
on entities doing business in the United States. While these reporting requirements become
effective January 1, 2024, “Reporting Companies” that are created or registered prior to that
effective date have until January 1, 2025 to file their initial reports. Reporting Companies will
then have 30 days to report any changes to their initial filing or correct errors in a previous filing.
FinCEN estimates that the number of legal entities already established in the United States that
may be affected by this final rule is in the tens of millions, so it will be important for owners of
corporate entities to obtain guidance from legal counsel to see if these new requirements will
apply to them.
The statutory reporting requirements under the Corporate Transparency Act require that
each beneficial owner and, for entities formed after the effective date on January 1, 2024, the
applicant of a Reporting Company file a report with FinCEN identifying the full legal name, date
of birth, current residential or business street address, and an identification number from either a
passport, State, local government, or Indian Tribe identification card, a drivers license, or a
FinCEN identifier for each beneficial owner and, if applicable, the applicant of that Reporting
Company. Given the sensitivity of the information being reported, the Corporate Transparency
Act imposes strict confidentiality, security, and access restrictions on the information being
reported to FinCEN, only authorizing disclosure by FinCEN in limited circumstances to a
statutorily defined group of governmental authorities and financial institutions.
To fully understand the statute and FinCEN’s final report, there are a few terms that they
have defined within the statute that affect who will have to report:
- Reporting Companies are, with some specific and enumerated exceptions*:
a) domestic corporations, limited liability companies, and other similar entities
that are created by the filing of a document with a secretary of state or a similar
office under the law of a State or Indian Tribe; and
b) foreign corporations, limited liability companies, and other similar entities
formed under the law of a foreign country and registered to do business in the
United States by the filing of a document with a secretary of state or a similar
office under the laws of a State or Indian Tribe.
*There are 23 specific, enumerated exceptions for legal entities that will not be defined
as Reporting Companies and therefore will not be required to submit a Beneficial
Ownership Information report to FinCEN. Careful attention must be taken to see if any of
these exceptions apply before an entity relies on the exception to not submit a report.
2. A beneficial owner is an individual who, directly or indirectly, exercises
substantial control over the entity or owns or controls 25 percent or more of the
ownership interests of the entity. Specific exceptions for individuals from being classified
as beneficial owners include:
a) minors if their parents or guardians are reported to FinCEN;
b) an individual acting as a nominee, intermediary, custodian, or agent on behalf
of another individual;
c) an individual acting solely as an employee of the reporting entity and whose
control over or economic benefits from the Reporting Company entity is derived
from the employment status of the person;
d) an individual whose only interest in the Reporting Company is through a right
of inheritance; and
e) a creditor of the Reporting Company unless the creditor exercises substantial
control over the entity or owns or controls 25 percent or more of the ownership
interests of the entity.
3. The applicant is any individual that files an application to form a Reporting
Company, whether by filing for a domestic entity, or files an application to register a
foreign entity in the United States.
In addition to the information about the beneficial owners and the applicant, these reports
from the Reporting Company must also include basic information about the Reporting Company
including its full legal name, the street address for its principal place of business, the jurisdiction
in which it was formed, and either the TIN or foreign tax identification number.
Garcia & Gurney, A Law Corporation offers comprehensive corporate counsel services to small to mid-sized companies in and around the Tri-Valley. For reliable advice on issues from formation to dissolution and everything in between, speak to a corporate attorney with in-depth experience in the industries that drive Alameda and Contra Costa Counties. Call us today at 925-468-0400 or contact us online.