In an earlier edition of this newsletter, I told you about the Corporate Transparency Act and the requirement that almost all companies will have to file reports, beginning January 1, 2024, with the Financial Crimes Enforcement Network aka FinCEN, which is part of the Department of the Treasury (website is at fincen.gov). Basically, any organization which has to file something with the Secretary of State (or equivalent governmental office in the jurisdiction where the organization was formed) has to report. There are MAJOR PENALTIES FOR FAILURE TO COMPLY.
One big issue is the part of the law that says that companies have to report their “beneficial owners.” The government has just issued its “Small Entity Compliance Guide” which gives more info about what beneficial ownership means.
Brett Wolf, a reporter with Thomson Reuters – Checkpoint, says that “Those affected by the rule, however, said that FinCEN’s guide is inadequate, and lobbyists and professionals are pressing Congress to take action to give entities more time to comply.”
Nevertheless, the rule for reporting kicks in January 1, 2024.
Key thing – the corporation, limited liability company, limited partnership, limited liability partnership and any other that is formed by filing with the Secretary of State, has to file. You should ASSUME that the rules apply to YOU, unless you get clear guidance – preferably from a licensed professional like your CPA or attorney – that says, in writing, that you are exempt.
You can find the new guide on the FinCEN.gov website. Prominently displayed under a couple of navigation bars at the top of the webpage, is the “lead article” with the big BOI logo (the “O” is a globe) and the headline “Beneficial Ownership Information.”
TRUSTS: for those of you with trusts, whether you are the trustee or a beneficiary, if you are wondering what the new guide says about trusts, there are a couple of places where the guide refers to trusts and trustees:
1st – page 11 – in the middle of a checklist designed to try to help you determine if your entity is in, or out, of the reporting requirement
2nd – page 14 – in another part of that same checklist.
3rd – page 19 – where the guide discusses “substantial control” (a key phrase in the process of determining who is a beneficial owner) – the guide says “Note for trusts: a trustee of a trust or similar arrangement may exercise substantial control over a reporting company” which means the trustee could and probably should be included in the company’s report as a beneficial owner.
4th – page 21 – where the guide says “Note for trusts: The following individuals may hold ownership interests in a reporting company through a trust or similar arrangements:
*A trustee or other individual with the authority to dispose of trust assets
*A beneficiary who is the sole permissible recipient of trust income and principal or who has the right to demand a distribution of or withdraw substantially all of the trust assets
*A grantor or settlor who has the right to revoke or otherwise withdraw trust assets.
5th – page 22 – in a checklist to help determine if your company has ownership interest that are equity, stock, voting rights or capital or profits interests.