Understanding FINCEN’s Final Beneficial Ownership Reporting Rule

November 3, 2022 Yosef Shwedel Private: Yuval Manor
Bank & Financial Business & Real Estate Business Law Tax

On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule implementing the Corporate Transparency Act’s beneficial ownership information (“BOI”) reporting provisions (the “Rule”). The Rule becomes effective beginning January 1, 2024 and applies to certain companies as explained below. As the public attempts to navigate the contours of this regulation, the following highlights should be considered:

  • WHO DOES THE RULE APPLY TO?
    • The Rule delineates two types of reporting companies, domestic and foreign.
    • The term “domestic reporting companies” includes corporations, limited liability companies, or other entities created in the United States or its territories and possessions.
    • The term “foreign reporting companies” includes corporations, limited liability companies, or other entities formed under the law of a foreign country but registered to do business in the United States.
    • Please be advised that the Rule sets forth 23 types of entities that are exempt from the definition of reporting companies, such as domestic banks, domestic credit unions, and certain public utilities.
  • WHEN ARE REPORTS DUE?
    • For companies created or registered before January 1, 2024, initial reports must be filed by January 1, 2025.
    • For companies created or registered after January 1, 2024, initial reports must be filed thirty days after receiving notice of said company’s creation or registration.
  • WHAT MUST BE DISCLOSED IN THE BENEFICIAL OWNERSHIP INFORMATION REPORT (“BOIR”)?
    • BOIR must identify a reporting company’s beneficial owner(s) by their full name, date of birth, current street address, and a unique identifying number and issuing jurisdiction from an acceptable identification document, along with an image of such document.
    • Companies created after January 1, 2024 must provide the above information for company applicants as well (as such term is defined below).
    • Individuals who provide the BOIR information directly to FinCEN may obtain a “FinCEN identifier,” which can then be provided to FinCEN on a BOI report in lieu of the above information.
  • IS THERE A CONTINUING DUTY TO UPDATE THE BOIR?
    • Yes – reporting companies have 30 days to report changes to their previously filed reports or otherwise correct inaccurate information within 30 days of becoming aware or having reason to know of such inaccuracy in their earlier reports.
  • WHO ARE BENEFICIAL OWNERS?
    • Subject to certain exemptions set forth in the Rule, a beneficial owner of a reporting company 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.
    • Individuals who exercise “substantial control” include, without limitation those who act as senior officers, have authority over the appointment or removal of senior officers or a majority of the board of directors, or have substantial influence over important matters of a given company. In sum, it captures anyone who is able to make important decisions on behalf of an entity.
  • WHO ARE COMPANY APPLICANTS?
    • A company applicant is:
      • The individual who directly filed the document that created the company in question, or in the case of foreign reporting companies, registered the company to do business in the United States; or
      • The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
    • As mentioned above, only companies existing or registered at the time of the effective date of the Rule are required to provide company applicant information. Companies formed after January 1, 2024 do not need to update company applicant information.
  • WHAT WILL HAPPEN TO THE SENSITIVE DATA PROVIDED IN THE BOIR?
    • The Corporate Transparency Act imposes strict confidentiality, security, and access restrictions on the data collected in the BOIR. FinCEN is only authorized to disclose such information under specific circumstances, and only to certain governmental authorities and financial institutions.

If you have further questions regarding compliance with the Rule, please feel free to contact Yosef Shwedel at ys@gs2law.com or Yuval Manor at ym@gs2law.com.