The Financial Crimes Enforcement Network’s (“FinCEN’s”) beneficial ownership reporting rule, issued under the Corporate Transparency Act (the “CTA” and such rule, the “BOI Reporting Rule”) became effective as of January 1, 2024.  The BOI Reporting Rule requires domestic and foreign corporations, limited liability companies and other similar entities that were formed or registered to do business in the United States and are not exempt pursuant to one or more exemptions provided for under the BOI Reporting Rule (“Reporting Companies”) to file beneficial ownership information reports (each, a “BOI report”) with FinCEN.  The date of formation of each Reporting Company determines when the Reporting Company’s initial BOI report must be filed.  The January 1, 2025 filing deadline for a Reporting Company formed or qualified to do business prior to January 1, 2024 to file its initial BOI report is rapidly approaching.  Please see the below chart for information regarding reporting filing deadlines.

As an update from a prior Client Alert on this topic, FinCEN has also clarified certain aspects of the BOI Reporting Rule. FinCEN has made clear that the subsidiary exemption is based on control of ownership interests of a Reporting Company. For example, if an exempt entity under the BOI Reporting Rule controls some but not all of the ownership interests of the subsidiary, the subsidiary does not qualify for the subsidiary exemption. Instead, a subsidiary’s ownership interests must be fully, 100 percent owned or controlled by certain exempt entities. Additionally, FinCEN has made clear that if a Reporting Company ceased to exist as a legal entity before the BOI Reporting Rule became effective on January 1, 2024, then no BOI report is required to be filed for such Reporting Company. However, if a Reporting Company continued to exist as a legal entity for any period of time on or after January 1, 2024 (i.e., it did not entirely complete the process of formally and irrevocably dissolving before such date), then it is still required to report its beneficial ownership information to FinCEN, even if the company had otherwise wound up its affairs and ceased conducting business prior to January 1, 2024. If a Reporting Company files an initial BOI report and then ceases to exist before the expiration of the 30-or 90-day period, there is no requirement for the Reporting Company to file an additional report with FinCEN noting that the company has ceased to exist. Note that the same requirements apply for foreign companies doing business in the United States. For additional detail, please see FinCEN’s FAQ.

Notably, in March of 2024, the U.S. District Court for the Northern District of Alabama held that the CTA was unconstitutional. The plaintiffs, the National Small Business United and Isaac Winkles (a National Small Business United Association (“NSBA”) member) filed suit alleging that the CTA’s mandatory beneficial ownership disclosure requirements exceeded Congress’s authority under Article I of the Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments. The trial court, ruling in favor of the plaintiffs, held that the Constitution did not give Congress the power to regulate entities the moment that the entity obtains formal corporate status. While the court granted the plaintiffs’ summary judgment motion and permanently enjoined the defendants from enforcing the CTA, the court specifically limited the injunction to only the plaintiffs who brought the case (i.e., the members of the NSBA and Isaac Winkles). FinCEN appealed this decision to the Court of Appeals for the Eleventh Circuit and published a Notice which stated, in relevant part, that “Other than the particular individuals and entities subject to the court’s injunction,…, reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.” Thus, given the limited nature of the trial court’s decision, Reporting Companies are still required to timely file their initial BOI reports.

Investment Managers must continue to ensure that they are properly adhering to the requirements of the CTA for as long as it remains in effect. Reporting Companies must be sure to timely file their BOI reports on FinCEN’s website. For additional information on what a Reporting Company is required to report within its BOI report, please see our Client Alert and contact your Investment Management Group attorney at Seward & Kissel LLP.