The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act of 2021, went into effect on January 1, 2024. The CTA is intended to increase corporate transparency and prevent bad actors from using “shell” companies to conduct illegal activities. Under the CTA, domestic and foreign “reporting companies” are required to submit beneficial ownership information (BOI) reports to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The BOI reports are a significant new disclosure requirement for affected companies—please review the information below to determine whether the reporting requirements apply to your company.
What is a reporting company?
A “reporting company” includes (i) domestic corporations, limited liability companies, or other entities formed with a secretary of state or similar office; and (ii) foreign corporations, limited liability companies, or other entities registered to do business in any U.S. state. Notwithstanding the broad definition of a reporting company, there are currently 23 types of entities that are exempted from filing BOI reports. Notably for our clients, the list of exempt entities includes the following: (i) SEC-registered investment advisers (SEC RIA); (ii) venture capital fund advisers that are exempt reporting advisers under Section 203(l) of the Investment Advisers Act of 1940 (Advisers Act); (iii) CFTC-registered commodity pool operator and commodity trading advisors and (iv) pooled investment vehicles (PIVs) operated or advised by an exempt adviser.
Note that state-registered investment advisers, unregistered investment advisers, “private fund advisers” that are exempt reporting advisers under Section 203(m) of the Advisers Act, and PIVs operated or advised by one of the foregoing entities are currently not exempt from the BOI report filing requirements. However, certain affiliates of an exempt entity—e.g., “relying advisers” of an SEC RIA and subsidiaries controlled or wholly owned by an SEC RIA—may also qualify for exemption under specific circumstances.
BOI report disclosure requirements and determining who is a beneficial owner?
BOI reports must include certain information regarding the reporting company and its beneficial owners. A “beneficial owner” is any individual who, directly or indirectly, either (i) exercises substantial control over a reporting company; or (ii) owns or controls at least 25% of the ownership interests of the reporting company. For each beneficial owner, the BOI report must include the individual’s legal name, date of birth, current address and a copy of the individual’s passport or driver’s license.
Whether an individual has “substantial control” of a reporting company depends on the power the individual exercises over the company. For example, an individual is deemed to have substantial control of a reporting company if he or she directs, determines, or has substantial influence over important decisions made by the company. In addition, any senior officer is deemed to have substantial control over a reporting company. The term “senior officer” means any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function.
Who is a company applicant?
For each entity, there are one or two company applicants: (i) the individual who directly files the document that creates, or first registers, the reporting company; and (ii) the individual who is primarily responsible for directing or controlling the filing of the relevant document (if different). Notably, company applicants formed before January 1, 2024 are not required to disclose their company applicants.
What are the BOI report filing deadlines?
There are three different BOI report filing deadlines, depending on the date a reporting company was created or registered to do business in the U.S.:
- Reporting companies created or registered to do business prior to January 1, 2024, must file an initial BOI report by January 1, 2025.
- Reporting companies created or registered to do business on or after January 1, 2024, and before January 1, 2025, must file an initial BOI report within 90 calendar days from the date each such company was created or registered to do business.
- Reporting companies created or registered to do business on or after January 1, 2025, must file an initial BOI report within 30 calendar days from the date each such company was created or registered to do business.
What are the requirements for updating BOI reports?
Reporting companies must file updated BOI reports within 30 days of (i) any change to the information reported; or (ii) becoming aware that any information reported is inaccurate. For private fund managers, a key change to monitor will be the obligation to file an updated BOI report any time the fund adds a beneficial owner (e.g., each time a limited partner obtains an ownership interest of 25% or more of the fund).
Overall, the CTA represents a significant new reporting requirement for affected companies. We are advising our clients to review the CTA and the BOI report requirements closely to determine whether they must report to FinCEN. As always, feel free to reach out to us should you have any questions.
 Full list of exempt entities: securities reporting issuer, governmental authority, bank, credit union, depository institution holding company, money services business, broker or dealer in securities, securities exchange or clearing agency, other Exchange Act registered agency, investment company or investment adviser, venture capital fund adviser, insurance company, state-licensed insurance producer, Commodity Exchange Act registered entity, accounting firms, public utility, financial market utility, pooled investment vehicle, tax-exempt entity, entity assisting a tax-exempt entity, large operating company, subsidiary of certain exempt entities, and inactive entity. Specific criteria apply.