FinCEN has recently released a new set of FAQs, providing valuable insights into Beneficial Ownership Reporting (BOIR) and the Corporate Transparency Act (CTA).
Private fund managers, in particular, have much to gain from two FAQs related to parent-subsidiary relationships.
But that’s not all! On December 22, 2023, Governor Hochul signed the LLC Transparency Act (LLCTA) into law in New York.
Scheduled for implementation on December 21, 2024, this act will introduce new beneficial ownership reporting obligations, closely resembling those in the CTA. However, it specifically targets limited liability companies in New York, excluding those eligible for LLCTA exemptions.
Let’s break down what you need to know in simpler terms.
Who Needs to Report Beneficial Ownership Information?
If your business is based in the U.S. or does business there, you must report certain ownership information.
Specifically, you must disclose who has substantial control over your business or who owns at least 25% of its shares.
The Corporate Transparency Act (CTA)
Businesses must share specific details under the Corporate Transparency Act (CTA). FinCEN, part of the U.S. Treasury, enforces these rules. Companies need to provide certain information because FinCEN’s main purpose is to prevent financial crimes.
BOI Exemptions Exist
Not everyone has to report. Some exemptions exist, especially for those in the investment management industry. However, figuring out if your business qualifies for these exemptions can be tricky. It’s best to consult with a legal expert or use the Exemption Checker Tool.
BOIR Frequently Asked Questions (FAQs)
FinCEN has provided answers to common questions about these rules. Here are some key points:
Basic FAQ:
- Who needs to report? Any business entity created by filing documents with a state or similar office must report. This includes corporations, limited liability companies (LLCs), and more.
- What information do I need? You’ll need to provide details like your company’s name, address, formation jurisdiction, and tax identification number. In addition, for each “Beneficial Owner,” you must share their legal name, birthdate, address, and ID details.
- Can you report legal entities? In some cases, you can report legal entities instead of individual owners if certain conditions are met.
- Do you need to update? Yes, once your information changes, you must update your report within 30 days.
Manager-Focused BOIR Questions
- Are registered investment advisers (RIAs) exempt? Under the Corporate Transparency Act (CTA), registered investment advisers (RIAs) are exempt from reporting obligations. However, this exemption only applies to the RIA itself and not to entities owning interests in the RIA.
- Are exempt reporting advisers, like private fund advisers and venture capital fund advisers, exempt? Exempt reporting advisers face different treatment. Private fund advisers exempt from SEC registration may need to report under the CTA if they form under domestic law or register in the U.S. Venture capital fund advisers are specifically exempt from CTA reporting if they include control persons’ information in Form ADV.
- Are foreign private advisers exempt? Foreign private advisers are typically exempt because they do not organize under U.S. laws or register to conduct business in the U.S.
- Are commodity pool operators and commodity trading advisors exempt? Commodity pool operators and trading advisors registered with the U.S. Commodity Futures Trading Commission (CFTC) are exempt. However, unregistered entities owning interests in them may not be exempt.
- Are entities created as general partners or managing members of private funds exempt? These entities are not expressly exempt, but there’s a potential exemption if they rely on the RIA’s SEC registration. Still, owners of these entities may not be exempt.
Fund-Focused BOIR Questions
- Are private funds exempt?
In essence, certain domestic reporting companies that qualify as pooled investment vehicles and are operated or advised by registered investment advisers, venture capital fund advisers, or others receive an exemption from CTA reporting. - Are non-U.S. funds exempt? Non-U.S. funds are usually exempt unless they are registered to do business in a U.S. state. If a non-U.S. fund happens to be registered or engaged in business within a U.S. state, it would then be subject to limited reporting obligations under the CTA.
- What about various entities in fund structures, like SPVs and co-investment vehicles? Because there’s uncertainty regarding the scope of these entities, managers should consult with counsel based on their specific circumstances.
- Are commodity pools exempt? Many commodity pools do not qualify as private funds, but various factors determine their eligibility for an exemption.
- What about a fund board? A report by a fund may feature individual directors, but typically, the board of directors itself does not qualify as a ‘Reporting Company.
- What about subsidiaries of exempt entities? (January 12, 2024, Update) Entities fully owned or controlled by certain exempt entities are exempt. Recent guidance clarified that “fully, 100% owned or controlled” entities qualify for this exemption.
New York’s LLCTA
New York has its own law called the LLC Transparency Act (LLCTA). It’s similar to the CTA but applies only to limited liability companies (LLCs) registered in New York or those formed under other states’ laws but doing business in New York.
When to Report?
The deadlines for reporting depend on when your business was created and whether any exemptions apply. If you’re forming a new entity, consider the reporting requirements immediately.
BOIR Privacy Matters
Both the CTA and LLCTA take privacy seriously. In General, information submitted to regulatory agencies will remain confidential except for specific circumstances like law enforcement requests or court orders.
Stay Informed With BOIR Updates
In summary, beneficial ownership reporting is now required for many U.S. and New York businesses.
Understanding these rules and staying compliant is vital to avoid potential legal issues.
Consider exploring beneficial ownership filing software like FincenFetch to simplify your reporting. Don’t wait; schedule a demo today and ensure your business remains on the right track!
