In January 2021, Congress passed the Corporate Transparency Act, 31 U.S.C. §5336 (“Act”), which provides for, among other things, the reporting and collection of beneficial ownership information for applicable entities. The intent behind the act is that “malign actors” seek to conceal their ownership in U.S. entities to facilitate illicit activity, and federal legislation is needed to protect against and counter such illicit activities. With that as a background, this post provides a general overview of the Act with respect to owners and applicants of entities. This post is not intended to be relied upon by any individuals or entities for any legal purpose and appropriate professionals should be consulted with for such purposes.

What is the Corporate Transparency Act, 31 USC 5336 (Act)?

The Corporate Transparency Act, 31 USC 5336, among other things, requires every corporation, LLC, or other similar entity that meets the definition of a “reporting company” to make a filing with FinCEN identifying its applicant and beneficial owner information. On September 29, 2022, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule implementing the beneficial ownership information (BOI) reporting requirements. The rule describes who must file a BOI report, what information must be reported, and when a report is due. The effective date for the final rule and reporting is January 1, 2024.

Who is an “Applicant”?

Applicant is defined as an individual who: (i) Files an application to form a corporation, LLC, or other similar entity under the laws of a State or Indian Tribe, or (ii) Registers or files an application to register a corporation, LLC, or other similar entity formed under the laws of a foreign country to do business in the United States by filing a document with the Secretary of State or similar office under the laws of a State or Indian Tribe.

Who is a “Beneficial Owner”?

Beneficial owner is defined as an individual who directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: (i) Exercises substantial control over the entity, or (ii) Owns or controls not less than 25% of the ownership interests of the entity.

Who is NOT a “Beneficial Owner”?

Persons excluded from the definition of beneficial owner are: (i) A minor child if the parent or guardian’s information is reported, (ii) An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual, (iii) An individual acting solely as an employee whose control or economic benefits from an entity derives solely from the person’s employment status, (iv) An individual whose only interest in an entity is through a right of inheritance, and (v) A creditor of the entity unless the creditor otherwise meets the definition of beneficial owner.

What is considered an Ownership Interest?

(i) Any equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust; in each such case, without regard to whether any such instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights; (ii) Any capital or profit interest in an entity; (iii) Any instrument convertible, with or without consideration, into any share or instrument described in (i), any future on any such instrument, or any warrant or right to purchase, sell, or subscribe to a share or interest described in (i); (iv) Any put, call, straddle, or other option or privilege of buying or selling any of the items described in (i), except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company; or Any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.

What Information Must be Reported by Beneficial Owners & Applicants?

Beneficial owners & applicants must report the following information:

•       Full Legal Name

•       Date of Birth

•       Current Residential or Business Street Address

•       Unique Identifying Number from an Acceptable Identification Document

•       Nonexpired US passport; State, local government, or Indian Tribe ID; State driver’s license; or if none of these are available, foreign passport

•       An Image of the Acceptable Identification Document

When must the report be filed?

Reporting begins January 1, 2024. All reporting companies created or registered on or after January 1, 2024, have to file their initial BOI report within 30 calendar days of receiving notice of their creation or registration. All reporting companies created or registered before January 1, 2024 (e.g., all reporting companies in existence now) have to file their initial BOI report no later than January 1, 2025.

Our attorneys at Starr Law Firm are well-versed in these legal matters and can assist you in navigating and complying with the new reporting requirements imposed by this Act.