US Corporate Transparency Act: Impact on Private Funds and Venture Capital Funds

Morgan Lewis

Morgan Lewis

The final rule of the Financial Crimes Enforcement Network (FinCEN) implementing the Corporate Transparency Act’s (CTA’s) beneficial ownership requirements will become effective on January 1, 2024. The final rule may apply to some of the entities within a private fund structure unless such entities are restricted to come within applicable exemptions before reporting dates becomes effective.

The CTA was enacted into federal law in the United States in January 2021, establishing uniform beneficial ownership information (BOI) reporting requirements for certain entities created or registered to do business in the United States (Reporting Companies).

On September 30, 2022, FinCEN, a bureau of the US Department of the Treasury and the US financial intelligence unit, published a final rule that implements the CTA’s BOI reporting requirements (the Final Rule).

We have previously prepared a comprehensive overview of the CTA’s implementing regulations. Below are some key takeaways of the CTA and the Final Rule, followed by a description of how these rules will impact private funds.


  • Existing Companies: Reporting Companies created on or registered to do business before January 1, 2024 must file their initial BOI reports by January 1, 2025.
  • New Companies: Reporting Companies created or registered to do business on or after January 1, 2024 must file their initial reports within 30 calendar days of the earlier of (1) the date on which they receive actual notice that their creation has become effective (in the case of a domestic Reporting Company (as defined below)) or they have been registered to do business (in the case of a foreign Reporting Company (as defined below)) or (2) the date on which a secretary of state or similar office first provides public notice.


Reporting Companies are bifurcated between domestic Reporting Companies and foreign Reporting Companies.

A domestic Reporting Company is any entity that is (1) a corporation, (2) a limited liability company (LLC), or (3) created by the filing of a document with a secretary of state of any similar office under the law of a state or American Indian tribe.

A foreign Reporting Company is any entity that is (1) a corporation, LLC, or other entity, (2) formed under the law of a foreign country, and (3) registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state of any similar office under the law of a state or American Indian tribe.


Reporting Companies must disclose certain personal information of each beneficial owner and company applicant to FinCEN.

A “beneficial owner” is any individual who exercises “substantial control” over the Reporting Company or who owns or controls a 25% “ownership interest” in the Reporting Company. Both terms are further defined in the Final Rule.

A “company applicant” is any individual who directly files the document that creates the domestic Reporting Company or registers the foreign Reporting Company, and the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing.


Reporting Company Information: Required disclosures include (1) legal name, (2) trade name, (3) business address, (4) jurisdiction information, and (5) US Internal Revenue Service (IRS) taxpayer identification number.

Beneficial Owner and Company Applicant Information: Required disclosures include (1) legal name, (2) date of birth, (3) current address, and (4) an identification document with a unique identifying number (e.g., passport).


The CTA and the Final Rule contain 23 exemptions for certain types of entities. The types of entities exempted generally include a range of entities regulated in the United States, certain participants in the investment funds industry, tax-exempt entities, large operating companies, and subsidiaries of certain exempt entities, among others.

Of interest to private funds, the Final Rule exempts the following:

Investment Companies or Investment Advisers

Any entity that is

  • an investment company as defined in Section 3 of the Investment Company Act of 1940 (1940 Act) or an investment adviser as defined in Section 202 of the Investment Advisers Act of 1940 (Advisers Act); and
  • registered with the US Securities and Exchange Commission (SEC) under the 1940 Act or the Advisers Act.

Venture Capital Fund Advisers

Any investment adviser that (1) is described in Section 203(l) of the Advisers Act and (2) has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the SEC (a Venture Capital Fund Adviser).

Pooled Investment Vehicles

Any pooled investment vehicle that is operated or advised by

  • any bank, as defined in (1) Section 3 of the Federal Deposit Insurance Act, (2) Section 2(a) of the 1940 Act, or (3) Section 202(a) of the Advisers Act;
  • any federal credit union or state credit union, as those terms are defined in Section 101 of the Federal Credit Union Act;
  • any broker or dealer, as those terms are defined in Section 3 of the Securities Exchange Act of 1934, that is registered under Section 15 of that act;
  • any entity that is an SEC registered investment company under the 1940 Act or an SEC registered investment adviser under the Advisers Act; or
  • any Venture Capital Fund Adviser.

The Final Rule defines a pooled investment vehicle to mean

  • any investment company, as defined in Section 3(a) of the 1940 Act; or
  • any company that (1) would be an investment company under that section but for the exclusion provided from that definition by paragraph (1) or (7) of Section 3(c) of that act; and (2) is identified by its legal name by the applicable investment adviser in its Form ADV (or successor form) filed with the SEC or will be so identified in the next annual updating amendment to Form ADV required to be filed by the applicable investment adviser pursuant to Rule 204–1 under the Advisers Act.

Large Operating Companies

Any entity that

  • employs more than 20 full-time employees in the United States, with “full-time employee in the United States” having the meaning provided in 26 CFR 54.4980H–1(a) and 54.4980H–3, except that the term “United States” as used in 26 CFR 54.4980H–1(a) and 54.4980H–3 has the meaning provided in Section 1010.100(hhh);
  • has an operating presence at a physical office within the United States; and
  • has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales, as reported as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120–S, IRS Form 1065, or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under federal income tax principles.

For an entity that is part of an affiliated group of corporations within the meaning of 26 USC § 1504 that filed a consolidated return, the applicable amount shall be the amount reported on the consolidated return for such group.


Reporting violations (e.g., false reporting or failure to report) can lead to civil or criminal penalties for a Reporting Company and certain individuals associated with it.


Depending on how private funds and their operations are structured, certain exemptions may apply. However, private funds and their managers will need to evaluate their current fund structures and consider changes if an exemption they desire to fit within would not apply to those structures. Below are some observations we have in this space.

Advisers to Pooled Investment Vehicles

SEC registered investment advisers (RIAs) are exempt from the Final Rule’s BOI reporting requirement. This is consistent with the exemption that RIAs have under the customer due diligence rule adopted by FinCEN in 2016. Exempt reporting advisers, however, would not enjoy a similar exemption, and, unless another exemption applies, would be subject to the Final Rule’s reporting requirements.

Similarly, state registered investment advisers are not exempt from the Final Rule’s BOI reporting requirements. As such, unless another exemption applies, state registered advisers will have reporting obligations. That said, some adviser entities may separately come within the meaning of a large operating company and thus be eligible for that exemption as well.

General Partners and Managing Members of Pooled Investment Vehicles

In the Final Rule release, FinCEN addressed a comment requesting an additional exemption encompassing vehicles used by an investment adviser that serve as general partners or managing members of pooled investment vehicles advised by the investment adviser. FinCEN declined to provide any additional exemptions but noted that an entity used by an exempt RIA could come under an exemption for subsidiaries that are controlled or wholly owned [1] by certain exempt entities, including RIAs.

Thus, to the extent that the ownership interests of an entity that is the general partner or managing member of a pooled investment vehicle are controlled or wholly owned, directly or indirectly, by an RIA or certain other exempt entities, that general partner or managing member would also be exempt. However, we note that, to the extent the ownership interests of an entity that is the general partner or managing member of a pooled investment vehicle are not controlled or wholly owned by the RIA, such as a joint venture–type arrangement with another entity, the subsidiary exemption may not apply.

Subsidiary Exemption Does Not Apply to Entities Owned by Pooled Investment Vehicles

In contrast to the application of the subsidiary exemption to the general partner or managing member of a pooled investment vehicle that is controlled or wholly owned by the RIA, the subsidiary exemption does not extend to situations where an entity’s ownership interests are controlled or wholly owned by an exempt pooled investment vehicle. Instead, such entity would have to determine if it can fit within another exemption (for example, the large operating company exemption).

Foreign Pooled Investment Vehicle

Notwithstanding the exemption for pooled investment vehicles, the Final Rule treats foreign pooled investment vehicles differently. More specifically, under the Final Rule, if the pooled investment vehicle is foreign (i.e., would come within the meaning of a foreign Reporting Company), it will still have to report information about an individual who exercises substantial control over the entity. If more than one individual exercises substantial control over the entity, the entity shall report information with respect to the individual who has the greatest authority over the strategic management of the entity.

Investments in Reporting Companies

Pooled investment vehicles that invest in nonexempt Reporting Companies may have to be included in the BOI reports filed by the nonexempt Reporting Company.


The foregoing highlights are not an exhaustive discussion of the details surrounding the application of the CTA and the Final Rule and their accompanying compliance obligations. Further, FinCEN still needs to finalize additional rulemakings (as discussed in our two prior LawFlashes) regarding (1) the form that will be used to submit information, (2) access to BOI information, and (3) safeguards required to protect BOI.

In addition, FinCEN must amend the customer due diligence requirements of financial institutions to conform them with the requirements of the CTA and the Final Rule and develop the infrastructure to administer the Final Rule’s reporting requirements. Morgan Lewis is closely following the development of these related sets of rules.

[1] Importantly, commenters asked FinCEN to state that the proposed rule should be modified to add a “wholly controlled or wholly owned” concept. See Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498, 59,543 (Sept. 30, 2022). In the preamble to the Final Rule, FinCEN states: “FinCEN is adopting 31 CFR 1010.380(c)(2)(xxii) as proposed, with a minor grammatical edit. While hewing to the statutory language, the interpretation prevents entities that are only partially owned by exempt entities from shielding all of their ultimate beneficial owners—including those that beneficially own the entity through a non-exempt parent—from disclosure. FinCEN does not need to add ‘wholly’ before ‘controlled’ because FinCEN assesses that the latter covers the intended concept of control set out in the CTA. FinCEN also determined that extending the exemption to majority-owned subsidiaries would include entities unintended by the language of the CTA . . . [h]owever, FinCEN will continue to consider suggestions for additional exemptions, including those proposed by commenters concerning this exemption.” Id.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis

Morgan Lewis on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide