1/6/22

Proposed Regulations Issued Under New Federal Law Mandating Disclosure of Owners of Private Companies

Related Practices

Attorneys & Professionals

The federal Corporate Transparency Act (CTA) was adopted on January 1, 2021, and is anticipated to go into effect sometime in 2022. It will require many domestic business entities and foreign business entities registered to do business in the U.S. to make an initial report to the federal government disclosing beneficial ownership and company applicant information (BOI) and to provide updates when their BOI changes.

The CTA itself is less than clear in many aspects, including with regard to the timing of reporting and updating BOI, and the definitions of certain crucial terms. The CTA acknowledged this by tasking the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) with issuing regulations that govern compliance with the CTA.

On December 8, 2021, FinCEN promulgated proposed regulations addressing BOI requirements (Proposed Regulations). The Proposed Regulations are open for comment, and written comments may be submitted on or before February 7, 2022. The Proposed Regulations address many questions that practitioners have raised over the past year since the CTA was enacted.

What Details Do the Proposed Regulations Provide about the CTA’s Reporting Requirements?

In general, the Proposed Regulations make clear that FinCEN intends to make the CTA as broad as possible in order to further its purpose of establishing a comprehensive database of beneficial owners and applicants of reporting companies. The definitions in the Proposed Regulations summarized below reflect this.

The CTA identified 23 specific types of companies that will be exempt from the reporting requirements. It also gave FinCEN the authority to add additional exemptions to this list, and to clarify the requirements of qualifying for existing exemptions. FinCEN does not currently plan to exempt additional types of entities beyond those already identified in the CTA.

Among others, exempt entities include the following:

Q&A

The CTA raised many questions, some of which were addressed by the Proposed Regulations. A few are summarized below.

Q.  If a company falls into one of the exemption categories, will it have to apply to FinCEN to claim such exemption?

A.  Likely no. The release accompanying the Proposed Regulations states that FinCEN does not have the statutory authority to require an exempt company to affirmatively apply for an exemption, although the release does invite comments on this issue.

Q.  What are the components of BOI that a reporting company is required to disclose?

A.  The reporting company must disclose each person’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document, including a scanned copy of such identification document, or a unique FinCEN identifier.

Q.  How does someone obtain a FinCEN identifier?

A.  An individual may obtain a FinCEN identifier by submitting to FinCEN the information required to be provided by a reporting company. The individual can then provide the FinCEN identifier to a reporting company in lieu of the BOI requirements.

Q.  What if a reporting company has a beneficial owner that is an exempt entity?

A.  Under the Proposed Regulations, in that situation the reporting company would only be required to report the name of the exempt entity.

Q.  When will a reporting company be required to submit an initial report?

A.  For companies formed prior to the effective date of the final rule (Effective Date), such company is required to submit the initial report within one year of the Effective Date. For companies formed on or after the Effective Date, such company is required to submit the initial report within 14 calendar days of the date of formation.

Q.  What is the required timing for submitting updates to reported information?

A.  Under the Proposed Regulations, a reporting company must file an updated report within 30 calendar days after the date on which there was a change in the reported information with respect to a beneficial owner or company applicant. Reporting companies have 14 calendar days to correct inaccuracies.

Q.  What if a company was not exempt from reporting at first, but becomes exempt at some point after filing an initial report?

A.  Under the Proposed Regulations, this change is considered a change with respect to the information in such company’s initial report, and so the company would be required to file an updated report disclosing the change.

Practical Pointers

Reporting companies, and their attorneys and other advisors, should keep in mind a few considerations:

The Proposed Regulations offer a preview as to what the final rule is likely to require of reporting companies. Interested parties should review the Proposed Regulations carefully, and take the opportunity to submit comments to FinCEN if so desired by February 7, 2022. The Proposed Regulations are just one of three notices of proposed rulemaking that will be issued by FinCEN related to the CTA. FinCEN also intends to release rulemaking on the protocols for access to and disclosure of BOI, and to revise the CDD Rule.

Please reach out to one of the authors of this alert or your Vorys attorney for more information.