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:

• Ownership or control of ownership interest. The final regulations emphasize FinCEN’s broad concept of ownership or control of an ownership interest, for which a 25 percent stake triggers a requirement to report the owner. FinCEN has explained that such ownership or control of an ownership interest may arise via “contract, arrangement, understanding, relationship, or otherwise” and has provided several examples. These include:
  • Through joint ownership;
  • Through another individual acting as agent;
  • Through ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such intermediary entities; and
  • With regard to a trust or similar arrangement that holds an ownership interest: (1) as a trustee of the trust or other individual with the authority to dispose of trust assets; (2) as a beneficiary who (i) is the sole permissible recipient of income and principal from the trust, or (ii) has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or (3) as a grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust.
• Substantial Control. FinCEN similarly has emphasized that, despite concerns regarding the breadth of the definition of “substantial control” of a reporting company (with information required on any individual exercising such control), FinCEN intends for the regulations to capture control that could be exercised in a wide variety of ways. The regulations specifically cover (and require information regarding) a reporting company’s senior officers, those who have authority regarding the appointment or removal of any senior officer or a majority of the board of directors, and those with substantial influence over important company decisions. The final regulations also maintain a “catch-all” covering individuals who have “any other form of substantial control over the reporting company.”
• Timing of Initial Report Filing. Reporting companies that are created or registered on or after the effective date (January 1, 2024) must file their initial reports within 30 days of either receiving notice that the company’s creation or registration is effective, or the secretary of state or similar office providing public notice that the reporting company has been created or registered, whichever occurs earlier (FinCEN’s proposed regulations required filing within 14 days). Existing reporting companies and reporting companies that are created prior to the effective date must file their initial reports within one year of the effective date (this represents no change from the proposal).
• Timing of Corrected Reports. Reporting companies must correct inaccurate reporting information within 30 days (whereas the proposed regulations required filing a corrected report within 14 days). FinCEN has emphasized that, while some comments suggested that FinCEN adopt a “good faith” standard for correcting and updating reports, the final regulations do not adopt a “good faith” standard.
• Company Applicant Information. Reporting companies created or registered before January 1, 2024, are not required to file company applicant information (whereas the proposed regulations required existing companies to file company applicant information). Reporting companies created or registered on or after January 1, 2024, are required to report company applicant information but are not required to update that information once it is initially filed (the proposed regulations required updates to company applicant information).

[1] Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 189 (Sept. 30, 2022).