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The Corporate Transparency Act Final Rules are Issued

October 5, 2022

By Robert J. Waine, Esquire

Financial Crimes Enforcement Network of the Department of Treasury (“FinCEN”) Issues Final Rule Implementing The Corporate Transparency Act

On September 29, 2022, FinCEN issued a final rule implementing the Corporate Transparency Act (“CTA”), 31 U.S.C.S. § 5336. The purpose of the CTA is to help fight corruption by requiring “reporting companies” to file beneficial ownership information (“BOI”) with FinCEN. The goal of the reporting requirements is to combat the use of anonymous shell companies or other opaque corporate structures that facilitate the flow and sheltering of illicit money. The final rule is designed to strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder money or hide assets. It is anticipated that it will cost reporting companies with simple management and ownership structures approximately $85.00 to prepare and submit an initial BOI report.

The final rule requires reporting companies to file with FinCEN reports that identify two categories of individuals: (1) beneficial owners of the entity; and (2) the company applicants of the entity. There are two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, limited liability company (“LLC”), or any entity created by the filing of a document with a secretary of state or similar office under the laws of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity formed under the laws of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. It should be noted that under the final rule twenty-three types of entities are exempt from the definition of “reporting company.”

Under the final rule, the beneficial owners of a reporting company must be identified. A beneficial owner is any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25% of the ownership interest of a reporting company. The rule defines the terms “substantial control” and “ownership interest,” as well as identifies five types of individuals who are exempt from the definition of “beneficial owner.”

The final rule defines “company applicant” as: (1) the individual who directly files the document that creates the entity, or for a foreign reporting company, the document that first registers the entity to do business in the U.S.; and (2) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. Under the final rule, reporting companies existing at the effective date of the final rule do not have to identify and report on their company applicants. In addition, reporting companies formed after the effective date of the final rule do not need to update company applicant information.

The BOI reports filed with FinCEN require the reporting company to identify itself and provide four pieces of information about each beneficial owner: (1) name; (2) birthdate; (3) address; and (4) a unique identifying number and issuing jurisdiction from an acceptable identification document and the image of such document. The final rule also requires the same information be provided for the company applicant for reporting companies created after January 1, 2024.

The effective date for the final rule is January 1, 2024. Reporting companies created before January 1, 2024, will have one year (until January 1, 2025) to file their initial report. Reporting companies created after January 1, 2024, will have 30 days after receiving notice of creation or registration to file the initial report. Also, reporting companies will have 30 days to report changes to the information in their previously filed reports, and must correct inaccurate information in previously filed reports within 30 days of becoming aware or having reason to know of the inaccurate information.

This final BOI reporting rule is one of three rules planned to implement the CTA. FinCEN will engage in additional rulemaking: (1) to establish rules as to who may access BOI, for what purpose, and what safeguards will be required to ensure the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule.

If you would like to learn more about the CTA and the reporting requirements, or obtain other assistance with your company, the attorneys at Rothman Gordon P.C. are ready to assist.  Please contact us online or call (412) 338-1169.

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