Notice of Proposed Rulemaking for Corporate Transparency Act

Saturday, December 11th, 2021

FinCEN has published a Proposed Regulations Notice (NPRM) regarding the agency’s plans to implement the Corporate Transparency Act (CTA). The NPRM was published on December 8, 2021, accompanied by an explanatory factsheet. Congress passed the CTA on January 1, 2021 to require US companies to disclose beneficial ownership information.

Reporting requirements: Reporting companies must submit a report on beneficial owner information (BOI). FinCEN has not yet said how to do this, but will likely issue a form and instructions that reporting companies will then submit to FinCEN. Reporting businesses must report (1) name, (2) date of birth, (3) address, and (4) a unique identification number of each beneficial owner from an acceptable identification document (and picture of such document).

A “beneficial owner” is any person who (i) owns 25% or more of the reporting entity or (ii) exercises significant control over the reporting entity. The NPRM defines three non-exclusive indicators of material control: (1) serving as an officer of a reporting company; (2) Authority to appoint or remove an officer or a dominant majority of the board of directors (or similar body) of a reporting entity; and (3) directing, determining, or deciding on, or materially influencing, important matters of a reporting entity. The tine “essential control” aims to identify the people who are behind the reporting company and who control its actions.

Each reporting company must also have (a) its name, (b) any alternate names under which the company does business (“d / b / a names”), (c) its business address, (d) the place of incorporation, or Registration and (e) a unique identification number.

Who has to report?: The CTA applies to domestic private and limited liability companies and overseas and domestic private companies doing business in the United States.

Exceptions: FinCEN has set the same exemptions as in the CTA (see 31 US Code § 5336 (a) (11) (b)) to exempt companies that are either already generally subject to regulations so that their property benefits are already known. Private companies that (i) employ more than 20 full-time employees in the United States; (ii) reported more than $ 5,000,000 in gross income or sales on their federal tax returns; and (iii) have an operational presence in a physical office in the United States are also excluded.

Effective Date: The notice and comment period for the NPRM runs until February 7, 2022, which means the proposed rule could take effect before the end of 2022.

Timed coordination: Reporting Entities that existed prior to the Effective Date will have one year from the Effective Date to begin reporting beneficial ownership information, likely sometime towards the end of 2023.

What’s next: Although there is not yet a reporting requirement, companies should first determine whether they are a reporting company within the meaning of the CTA or whether they meet one of the numerous exceptions. Reporting entities now in existence can begin to identify their beneficial owners and prepare for that disclosure.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 345

https://www.natlawreview.com/article/fincen-issues-notice-proposed-rulemaking-corporate-transparency-act