The much-publicized Corporate Transparency Act (the “Act”), passed by the United States Congress in 2021, took effect on January 1, 2024. The Act creates a new beneficial ownership information (“BOI”) reporting requirement that is intended to make it more difficult for terrorists and other bad actors to engage in money laundering, corruption, sanctions and tax evasion, drug and human trafficking, fraud and other criminal offenses.
Although the Act currently creates a reporting change that businesses should be aware of, interpretation under the Act is also rapidly evolving. The Access Rule (as defined herein), which addresses how authorized recipients can directly and indirectly access BOI for a particular company, and the protocols associated with such access, became effective February 20, 2024. Because the Access Rule will be implemented over an extended period, companies and their counsel must continuously monitor requirements of the Act and guidance thereunder. Additionally, early challenges to the Act are emerging. For example, in considering a challenge to the constitutionality of the Act, U.S. District Judge Liles C. Burke of the Northern District of Alabama ruled that the Act exceeds the powers granted to Congress under the Constitution. Therefore, in addition to being aware of the current state of the Act and its requirements and remaining abreast of changes, companies and their counsel should continuously monitor the entire legal landscape surrounding the Act.
Beneficial Ownership Information. The Act requires certain companies to report BOI, i.e., information about the individuals who directly or indirectly own or control a company. For purposes of the Act, a beneficial owner is an individual who either, directly or indirectly, (a) owns or controls at least 25% of the reporting company’s ownership interests (e.g., shares of stock, limited liability company interests, voting rights or other indicia of ownership) or (b) exercises substantial control over a reporting company. An individual exercises substantial control over a company if the individual (i) is a senior officer, (ii) has authority to appoint or remove any senior officer or a majority of the board of directors (or similar body), (iii) is an important decision-maker for the company or (iv) has any other form of substantial control over the company. A “senior officer” is an individual who holds the position or exercises the authority, or performs a similar function as that, of a company’s President, Chief Financial Officer, General Counsel, Chief Executive Officer or Chief Operating Officer.
Excepted Individuals. Certain individuals are excepted from the beneficial owner definition, namely, (a) minor children, (b) certain nominees, intermediaries, custodians or agents, (c) employees with substantial control over, or economic benefits from, the reporting company that come solely from their employment status, (d) individuals with only a future interest through a right of inheritance and (e) certain creditors of the reporting company.
Reporting Companies. Companies that are required to report under the Act (referred to herein as “reporting companies”) are one of two types: (a) domestic reporting companies (i.e., corporations, limited liability companies and other entities created by the filing of a document with a secretary of state or similar office in the United States) or (b) foreign reporting companies (i.e., entities created under the laws of a foreign country that have registered to do business in the United States by filing a document with a secretary of state or similar office in the United States). Twenty-three types of entities are exempt from BOI reporting requirements. Among these are certain publicly traded companies, banks, large operating companies, nonprofit entities and inactive entities. Generally, a company that does not qualify for one or more exemptions is required to report.
Initial Reporting Deadlines. Companies created or registered to do business in 2024 that are not exempt from the Act’s reporting obligation will have 90 calendar days from the date of actual or public notice (whichever is earlier) of their creation or registration to file their initial BOI reports with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury. Companies created or registered to do business prior to 2024 that are not exempt from the reporting obligation will have until January 1, 2025 to file their initial BOI reports with FinCEN. Non-exempt companies created or registered on or after January 1, 2025 will have 30 calendar days from the date of actual or public notice (whichever is earlier) of their creation or registration to submit their initial BOI reports to FinCEN.
General Information Requirements. A reporting company must report information about itself and its beneficial owners. Additionally, any reporting company created or registered on or after January 1, 2024 must report information on up to two individuals who qualify as company applicants. A company applicant is (a) an individual who directly files the document that creates or registers the company and (b) if more than one individual is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
Reporting Company Information. The information a reporting company must report about itself is: (a) its legal name, (b) any trade names, “doing business as” names or “trading as” names, (c) the current street address of its principal place of business if in the United States or, for reporting companies whose principal place of business is outside the United States, the current address at which the company conducts business in the United States, (d) its jurisdiction of formation or registration and (e) its Taxpayer Identification Number (“TIN”) or, if a foreign reporting company does not have a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction.
Beneficial Owner Information. The information a reporting company must report about each of its individual beneficial owners is each individual’s: (a) name, (b) date of birth, (c) residential address and (d) identifying number from an acceptable identification document (e.g., a non-expired passport or U.S. driver’s license) and the name of the issuing state or jurisdiction. The reporting company must also file an image of the relevant identification document.
Company Applicant Information. The information a reporting company must report about its individual company applicants is each individual’s: (a) name, (b) date of birth, (c) address and (d) identifying number from an acceptable identification document and the name of the issuing state or jurisdiction (and an image of the identification document).
Information Changes or Inaccuracies. A reporting company must report any change in the information included in any previously filed BOI report no later than 30 days after the date of the change (other than any changes to previously reported information about a company applicant). Any inaccuracy in a BOI report must be reported no later than 30 days after the date the company becomes aware or should have known of the inaccuracy.
FinCEN Identifiers. Upon request, FinCEN will issue to an individual or reporting company a unique identifying number (referred to herein as a “FinCEN identifier”) after the individual or reporting company provides its information to FinCEN. A reporting company may report an individual’s FinCEN identifier in place of the individual’s otherwise required personal information. Individuals must report any change to or inaccuracy in the information submitted to obtain a FinCEN identifier no later than 30 days after the change occurred or the individual became aware of or should have known of the inaccuracy.
BOI Access and Protection. FinCEN’s final rule on access to BOI became effective on February 20, 2024 (the “Access Rule”). The Act provides that BOI is confidential and may not be disclosed except as authorized under the Act and the Access Rule. According to FinCen, BOI reported to FinCEN will be stored in a secure, non-public database. The Access Rule authorizes disclosure of BOI to the following categories of recipients: (a) U.S. federal agencies engaged in national security, intelligence or law enforcement activities, (b) state, local and tribal law enforcement agencies with court authorization, (c) foreign law enforcement agencies, judges, prosecutors and other authorities that meet specific criteria and that submit a request through a U.S. federal government agency, (d) financial institutions with customer due diligence requirements (with the consent of the reporting company) and regulators supervising them for compliance with those requirements and (e) U.S. Department of the Treasury officers and employees. Each category of authorized users will be subject to specific BOI security and confidentiality requirements. FinCEN will provide authorized users access to BOI in phases.
BOI Report Filing. FinCEN began accepting BOI reports on January 1, 2024. BOI reports must be filed electronically through a filing system available at FinCEN’s website. FinCEN expects that many reporting companies will be able to submit their BOI reports to FinCEN on their own using the guidance FinCEN has issued on its website, however, reporting companies may also seek help from attorneys, accountants and other professional service providers to meet their reporting obligations.
Click here to view, download, and share FAQs regarding the Corporate Transparency Act.
Prepared by Bo Boyd, Partner, and Jonathan Bickham, Senior Counsel, at Walker Eisenbraun LLC, a transactional, corporate and securities law firm located at 5300 Memorial Dr., Suite 475, Houston, TX 77007.
Bo can be reached at bboyd@walkereisenbraun.com.
Jonathan can be reached at jtbickham@walkereisenbraun.com.
