On December 1, 2021, we issued a client alert summarizing the Corporate Transparency Act (CTA), a federal law passed to fight “shell company” money laundering, tax fraud, and other financial crimes. The CTA provides for rules to be promulgated requiring the disclosure of beneficial ownership information of certain entities to the Financial Crimes Enforcement Network (FinCEN). On September 30, 2022, the CTA’s final rule was published (the Final Rule).

With certain exemptions, the Final Rule applies to all corporations, limited liability companies, and other entities that are formed or registered to do business in the United States, whether domestic or foreign (collectively, Reporting Companies). Types of exempted entities under the Final Rule include:

1. Publicly traded companies

2. Most financial service, investment, accounting, and banking institutions already licensed by or reporting to agencies like the SEC and FDIC

3. Tax-exempt entities

4. Companies that have a physical presence in the United States, more than 20 full-time employees, and report gross receipts of more than $5 million annually

5. Inactive entities (as defined in the Final Rule)

The Final Rule will take effect on January 1, 2024. Reporting Companies created or registered before January 1, 2024, will have one (1) year, but no later than January 1, 2025, to file their initial reports. Reporting Companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial reports have been filed, both existing and new Reporting Companies will have to file updates within 30 days of a change in their beneficial ownership information.

The Final Rule requires that Reporting Companies submit certain information of any “beneficial owner”, which is defined as any individual who, directly or indirectly, either (1) exercises substantial control over the Reporting Company or (2) owns or controls at least 25% of the ownership interests of the Reporting Company. The information to be provided includes full legal name, date of birth, current address, unique identifying number, and issuing jurisdiction from certain approved documents.

A Reporting Company created or registered on or after January 1, 2024, must also submit personal information for any “company applicant” of the entity. For a domestic entity, the company applicant is the individual who directly files the document creating the domestic reporting company. For a foreign entity, the company applicant is the individual who directly files the document first registering the foreign reporting company in the United States. The information provided will not be publicly available, but FinCEN is authorized to disclose the information to certain governmental agencies.

The Final Rule is the first of three rules planned to fully implement the CTA. FinCEN will engage in additional rulemakings to (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected, and (2) revise FinCEN’s customer due diligence rule in light of the CTA.