FinCEN has issued a notice of proposed rulemaking (NPRM) regarding how the agency is planning to implement the Corporate Transparency Act (CTA).  The NPRM came out on December 8, 2021, accompanied by an explanatory factsheet.  Congress passed the CTA on January 1, 2021 in order to require U.S. companies to disclose beneficial ownership information.

Reporting Requirements:  Reporting companies will have to file a Beneficial Ownership Information (BOI) Report.  FinCEN has not yet said how to do this, but will likely issue a form and instructions that reporting companies will then file with FinCEN.  Reporting companies must report each beneficial owner’s (1) name, (2) birthdate, (3) address, and (4) a unique identifying number from an acceptable identification document (and the image of such document).

A “beneficial owner” is any individual who (i) owns 25% or more of the reporting company or (ii) exercises substantial control over the reporting company.  The NPRM sets forth three non-exclusive indicators of substantial control:  (1) service as a senior officer of a reporting company; (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company; and (3) direction, determination, or decision of, or substantial influence over, important matters of a reporting company.  The “substantial control” prong aims to identify the individuals who stand behind the reporting company and direct its actions.

Each reporting company will also be required to report (a) its name, (b) any alternative names through which the company is engaging in business (“d/b/a names”), (c) its business street address, (d) its jurisdiction of formation or registration, and (e) a unique identification number.

Who Must Report:  The CTA applies to domestic private corporations and limited liability companies and foreign and domestic private corporations doing business in the United States.

Exceptions:  FinCEN has carved out the same exemptions to rule as set forth in the CTA (see 31 U.S. Code § 5336(a)(11)(b)) in order to exempt entities that are either already generally subject to regulations such that their beneficial ownership is already disclosed.  Private companies that (i) employ more than 20 employees on a full-time basis in the United States; (ii) reported more than $5,000,000 in gross receipts or sales on their federal tax returns; and (iii) have an operating presence at a physical office within the United States are also exempt.

Effective Date:  The notice and comment period for the NPRM is open until Feb. 7, 2022, meaning the proposed rule could be effective before the end of 2022.

Timing:  Reporting companies that are in existence prior to effective date will have one year from the effective date to start reporting beneficial ownership information, probably sometime around the end of 2023.

What’s Next:  While there is no reporting requirement yet, companies should first determine whether they are a reporting company under the CTA, or if they meet one of the numerous exceptions.  Reporting companies that exist now can start identifying their beneficial owners and preparing to make these disclosures.