Corporate Transparency Act Filing and Updating Beneficial Ownership Reports in the US | Locke Lord LLP

As reported in our previous QuickStudies research on the Corporate Transparency Act (CTA)⁽¹⁾ and Regulations adopted by the Financial Crimes Network (“FinCEN”), any company in existence on or after January 1, 2024 that is organized or formed by filing at any time with the Secretary of State or similar governmental authority of any U.S. State, protectorate, district, territory or tribal authority (each, a “Reporting Company”)⁽²⁾ must determine whether a Beneficial Ownership Report (“BOIR”) containing personal information about beneficial owners and controlling persons should be filed with FinCEN, or whether the entity is exempt from filing a BOIR with FinCEN pursuant to one or more statutory exemptions. Beneficial Ownership Information filed with FinCEN is considered “sensitive information”⁽³⁾ maintained by FinCEN in a “secure, non-public database, using information security methods and techniques that are appropriate for protecting classified information systems at the highest level of security”⁽⁴⁾ and should be treated as such by the Reporting Company and its management.

Unfortunately, the reporting/exemption analysis or the obligation to file or update BOIRs does not end with the initial filing of BOIRs or the determination that an exemption may apply. After the initial filing or determination of exemption, it is important for the Reporting Company to review its reporting/exemption status and information on file with FinCEN for itself and for each of its subsidiaries and beneficial owners, as it may be necessary to amend or update reporting or reconsider the applicability of the exemption or the loss of the exemption for the entity or its subsidiaries.⁽⁵⁾

Changes in the name, trade names, size or form of an entity, its beneficial owners (including for this purpose owners of equity interests and profits, holders of convertible bonds, officers, controlling persons, etc.), state of formation, address or exempt status will require updated FinCEN filings by each Reporting Company that filed an initial BOIR or the filing of an initial BOIR. Similarly, changes in the entity’s beneficial ownership information (for example, changes in name, status, address, government-issued identification number, government-issued identification document) will require an update to the Company’s FinCEN BOIR, unless the Company’s BOIR included the FinCEN identifier of the individual beneficial owner and that person updated his or her information on file with FinCEN when the change in reportable information occurred. The deadline for changes or updates to the Reporting Company’s reports and FinCEN beneficial owner identifier filings is 30 calendar days from the date of the event.

Non-exempt reporting companies in existence before January 1, 2024, will be required to file an initial BOIR by January 1, 2025, regardless of whether they are dissolved on or after January 1, 2024. Reporting companies formed in 2024 have 90 calendar days to file an initial BOIR unless an exemption applies, but beginning in 2025, the deadline for filing initial BOIRs is only 30 calendar days from the date of formation.

For entities formed before January 1, 2024, the initial BOIR need not include the Company Applicant’s personal information or FinCEN identifier, but for entities formed in 2024 or later, Company Applicant information is required for the BOIR to be complete. There is no obligation to update Company Applicant information unless the initial BOIR included erroneous information regarding the Company Applicant.

The following is a non-exhaustive list of some of the changes affecting Reporting Companies that may result in mandatory changes or updates to already filed BOIRs or the need to file a preliminary BOIR with FinCEN:

• Establishment of a new entity
• Change of entity name or trade names
• Changes in the form of existence or state of formation
• Change of address
• Mergers, acquisitions, spin-offs or other divestitures
• Capital or debt financing or transfers
• Issue of options, warrants or rights
• Registration or Deregistration as a Reporting Company Under the Securities and Exchange Act of 1934, as Amended (“Act 34”)
• Loss or qualification for exemption from the obligation to file BOIR tax returns
• Change of beneficial owners
• Changes to the personal data of each Beneficial Owner

With less than four months left until the end of 2024, it is important for each potential Reporting Company to collect, retain and secure the information it may need to comply with CTA reporting requirements.

On July 26, 2024, FinCEN issued a Notice to Financial Institution Customers Regarding Beneficial Ownership Information Requirements and Reference Guide highlighting the differences between the information to be collected from customers by financial institutions and the information that must be reported by Reporting Companies directly to FinCEN at BOIR.

Using a third-party vendor to gather and file information and submit documents for the Reporting Company and its subsidiaries can be helpful in meeting the deadlines imposed by the CTA regulations. However, as FinCEN notes on its website, there have been fraudulent attempts to obtain beneficial ownership information from Reporting Companies and their boards and beneficial owners under the guise of helping Reporting Companies file documents on time. As such, it is important to thoroughly vet any third-party vendor and its CTA platform to ensure the security and integrity of the data.

Having readily available information about the company, the company applicant, and the beneficial owner will be especially important when the entity is involved in an offering, merger, acquisition, divestiture, sale, or issuance of securities or debt that could trigger a reporting requirement in the future. Accordingly, it may be in order to update governance documents before the end of 2024, such as shareholders’ agreements, limited partnership agreements, limited liability company agreements, joint venture agreements, employment agreements, and model subscription agreements, to include the obligations and commitment of the owners, senior management, and other persons exercising significant control over the entity to provide and update the necessary personal information and documentation. Similarly, collecting and maintaining information about the company applicant for entities formed in 2024 and beyond will be important if and when initial BOIRs become necessary.

FinCEN has made available and periodically updates a number of Frequently asked questions and Small Business Compliance Guide to assist Reporting Companies and their management in complying with the CTA and FinCEN Regulations.

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