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Who are Beneficial Owners?
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A beneficial owner includes any individual who, directly or indirectly, either:
- Exercises substantial control over a reporting company, or
- Owns or controls at least 25% of the ownership interests of a reporting company
“Substantial control” is defined as:
- Service as a senior officer of a reporting company
- Authority over the appointment or removal of any senior officer or a majority or dominant minority of the board of directors (or similar body) of a reporting company
- Direction, determination, or decision of, or substantial influence over, important matters affecting a reporting company
The proposed rule also included a catch-all provision to ensure consideration of any other forms that substantial control might take beyond the criteria specifically listed.
“Ownership interest” is defined widely, as per the below:
- Any equity, stock, or similar instrument; preorganization certificate or subscription; transferable shares of, or voting trust certificate, certificate of deposit for an equity security, interest in a joint venture, or certificate of interest in a business trust; in each such case, without regard to whether any such instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights
- Any capital or profit interest in an entity
- Any instrument convertible into any share or instrument described above, any future on any such instrument, or any warrant or right to purchase, sell, or subscribe to a share or interest regardless of whether characterized as debt
- Any put, call, straddle, or other option or privilege of buying or selling any of the items described above except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company
- Any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership
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What entities are in scope?
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- Domestic reporting companies: corporation, Limited Liability Company ("LLC"), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe
- Foreign reporting companies: corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office
Exemptions:
There are 23 exemptions listed in the final rule, such as pooled investment vehicles, investment companies or investment advisors, venture capital fund advisors, public accounting firms, depository institution holding companies or inactive entities.
In addition to this, the final rule also includes an exception for reporting companies owned by an exempt entity with an individual is a beneficial owner of the reporting company exclusively by virtue of the individual’s ownership interest in such exempt entities. Under this exemption, the reporting companies will only have to report the names of the exempt entities.
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What do you need to report?
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Reporting will focus on reporting companies, their beneficial owners, as well as company applicants (i.e., the individual who directly files the document that creates a domestic reporting company, as well as the individual who is primarily responsible for directing or controlling such filing; or the individual who directly files the document that first registers a foreign reporting company, as well as the individual who is primarily responsible for directing or controlling such filing (if more than one individual is involved in the filing)).
- Reporting companies:
- Full legal name and any trade name or “doing business as”
- Address of principal place of business (if in the United States) or primary location in the United States where the reporting company does business (in other cases)
- Jurisdiction of formation (for both domestic and foreign reporting companies) and initial registration in the United States (for foreign reporting companies)
- Taxpayer Identification Number ("TIN")(including an Employer Identification Number ("EIN")) or a tax identification number issued by a foreign jurisdiction if such jurisdiction does not issue TINs.
- Reporting applicants and beneficial owners:
- Full legal name
- Date of birth
- Current address
- In the case of a company applicant who forms or registers an entity in the course of such company applicant’s business: the street address of such business
- In any other case: the individual’s residential street address
- A unique identifying number and the issuing jurisdiction from one of the following:
- Non-expired U.S. passport
- Non-expired U.S. State identification document
- Non-expired U.S. driver’s license
- A non-expired foreign passport
An image of the document from which the unique identifying number referred above
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Timelines
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- The rules take effect as of January, 1 2024 and reports will be filed under the Beneficial Ownership Secure System ("BOSS"), currently under development by FinCEN.
- Reporting companies created or registered before January 1, 2024: one year (until January 1, 2025) to file their initial reports
- Reporting companies created or registered after January 1, 2024: 30 days after receiving notice of their creation or registration to file their initial reports
- Should any information reported no longer be accurate or require updates, reporting companies will have 30 days to either file updated reports or correct a previously submitted report, a welcome change from the initial 14 days included in the original rule.
Any entity that becomes no longer exempt from reporting will need to file a report within 30 calendar days after the date that it no longer meets the criteria for any exemption
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