November 20, 2024

In case you missed our earlier Alert on the upcoming filing requirements by certain corporate entities, including LLCs, under the Corporate Transparency Act (CTA), please see our Reference Guide. As described therein, certain corporate entities must electronically file a “beneficial ownership information report” (BOI Report) with the Financial Crimes Enforcement Network (FinCEN) by January 1, 2025 if formed prior to January 1, 2024, or within 90 days of its formation if formed during 2024, or within 30 days of its formation if formed on or after January 1, 2025.

Is this Filing Requirement Applicable to Public Companies or Their Subsidiaries?
Public companies are exempt from the filing requirements under the CTA. However, a public company’s subsidiaries may be required to file under the CTA under certain circumstances. Wholly owned subsidiaries of public companies are exempt from this filing requirement.

Unfortunately, on January 12, 2024, FinCen issued FAQ L.6 providing, in part, that “[i]f an exempt entity controls some but not all of the ownership interests of the subsidiary and any of remaining interests are controlled by a non-exempt entity or individual, the subsidiary does not qualify for the subsidiary exemption. To qualify, a subsidiary’s ownership interests must be fully, 100 percent owned or controlled by one or more entities from the list of exempt entities….” On October 3, 2024, FinCen updated this FAQ to clarify that “[i]n this context, control of ownership interests means that the exempt entity or entities entirely control all of the ownership interests in the reporting company, in the same way that an exempt entity or entities must wholly own all of a subsidiary’s ownership interests for the exemption to apply.”

This FAQ causes problems for entities with management carried interests, options or other forms of equity incentives, such as interests convertible into equity, issued to individuals in addition to joint ventures with non-exempt minority investors. This is true even if the public company owns or controls a majority economic ownership interest in the subsidiary in question. Accordingly, subsidiaries of public companies listed on exhibits to the public company’s Form 10-K that have other non-exempt owners are not exempt from the filing requirements under the CTA.

BOI Report
If a public company owns a subsidiary subject to this filing requirement, much of the information in the BOI Report is fairly basic and readily available, but it must provide detailed information about the entity’s Beneficial Owners (defined below), including (but not limited to) their date of birth, residential street address, taxpayer identification number and either their passport number or driver’s license number or other acceptable unique identifier (along with an image of that identification document). If any of this information changes, the entity must file an updated or amended report within 30 days of the change. Examples of changes that would trigger a duty to update a report include a new business name for the reporting company, a change in Beneficial Owners, such as a change in senior managers, directors, managers, large equity owners or any change to a Beneficial Owner’s name, address or a license or passport number, as applicable. Willful noncompliance of these reporting requirements could result in a civil fine of $500/day or criminal penalties including a fine of up to $10,000, imprisonment or both.

Beneficial Owner
A Beneficial Owner is an individual who, directly or indirectly, exercises “Substantial Control” over the company. Generally, an individual exercises Substantial Control if they (i) are a senior officer, director or manager or (ii) direct, determine or have substantial influence over important business decisions. Whether a particular senior officer, director or manager directly or indirectly exercises substantial control over a reporting company must be considered on a case-by-case basis. Any individual who exercises Substantial Control over the reporting company through an unaffiliated company must be reported as a Beneficial Owner of the reporting company. In addition, to Substantial Control, an individual is a Beneficial Owner if they own or control 25% or more of a company’s ownership interests. It is possible for certain trust arrangements to constitute Beneficial Ownership.

Under a special reporting rule applicable to public companies, a reporting company may report a parent company‘s name in lieu of information about its beneficial owners if its beneficial owners only hold their ownership interest in the reporting company through the parent company and the parent company is an exempt entity.

Company Applicant
Companies formed on or after January 1, 2024 must also report information about Company Applicants (typically the attorney and/or paralegal who directed the formation of the company and filed the documentation with the applicable Secretary of State).

What Should Public Companies Be Doing Now?
Public companies should analyze whether any of its subsidiaries are subject to the filing requirements under the CTA and, if so, consider taking some or all of these actions:

• Amend the subsidiary’s organizational documents or shareholder agreements to require Beneficial Owners to promptly update the company’s records upon a change of any of this information. If this action is taken, it makes sense to do so before filing the applicable BOI Reports, if possible.
• Consider adding indemnification provisions in its favor in the appropriate document or policy to protect it from a Beneficial Owner who does not provide accurate, complete, and timely information initially or upon a change. Before doing so, determine whether such a provision would conflict with other existing indemnification obligations and exculpation by the reporting company of senior officers, directors or managers who are Beneficial Owners or with individuals or equity owners who are also Beneficial Owners.
• If you need assistance in making such a filing, there are service providers, such as Capital Services, who will work with you to make such filings for a fee ($120 in the case of Capital Services).

If you have questions regarding the filing requirements, here are some other resources for your reference:

• FinCen’s Frequently Asked Questions regarding Beneficial Ownership Information
• FinCen’s Small Entity Compliance Guide regarding BOI reporting requirements

As indicated above, the CTA and its implementing regulations have created a number of new risks and responsibilities – we understand the difficulty in sorting through these new requirements, let alone complying with them. If you have any questions about them, or how GableGotwals may be able to help you, please let us know.

Jeffrey T. Haughey 918-595-4837 jhaughey@gablelaw.com	Brooks A. Richardson 405-568-3310 brichardson@gablelaw.com

This article is provided for educational and informational purposes only and does not contain legal advice or create an attorney-client relationship. The information provided should not be taken as an indication of future legal results; any information provided should not be acted upon without consulting legal counsel.

Hear from Bailey Barnes in this short but informative 30-minute presentation on The Corporate Transparency Act and what businesses need to know about upcoming reporting deadlines.

Additional Resources:

Business Alert – Corporate Transparency Act: Reference Guide

Business Alert – Upcoming Individual and Corporate Responsibilities Under the CTA

January 1, 2024 | By: Brooks A. Richardson and Tom C. Vincent II

On January 1, 2024, beneficial ownership information reporting requirements will take effect for legal entities created or registered to do business in the United States. The CTA reporting requirements will affect “tens of millions” of legal entities, according to official estimates from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Businesses of all sizes will need to consider their reporting obligations.

Who must file beneficial ownership information reports (“BOI Reports”)?

• “Reporting Companies” are defined to mean virtually any legal entity created or registered to do business in the United States, including corporations, LLCs, various types of partnerships, and certain trusts. The statutory and regulatory definitions are intentionally broad.

What are the exemptions from these requirements?

• Under the CTA and FinCEN’s implementing rules, 23 exemptions exist from the definition of “Reporting Company.” An entity that qualifies for any one of these exemptions need not file a BOI Report.
• Examples of exempt entities include:
  • Banks, bank holding companies, broker-dealers, exchanges, clearinghouses, and CFTC-registered entities
  • Issuers of securities registered under Exchange Act Section 12 or required to file information under Section 15(d)
  • Investment companies and registered investment advisers
  • Certain registered venture capital fund advisers
  • Insurance companies
  • Accounting firms
  • Certain pooled investment vehicles
  • Tax-exempt entities
  • “Large operating companies” with:
    • a physical office in the U.S.;
    • more than 20 full-time employees; and
    • annual gross revenues exceeding $5MM
  • Subsidiaries “controlled or wholly owned” by certain types of exempt entities
  • “Inactive” entities

How is a BOI Report filed?

Through an electronic filing system available through FinCEN’s website. FinCEN cannot accept BOI reports before January 1, 2024.  Starting on that day, the URL to file a report is:  https://www.fincen.gov/boi

What information must a BOI Report include?

• Full legal name of entity and any “doing business as” (DBA) name;
• Street address for the entity’s principal place of business (domestic entities) or the primary U.S. location (foreign entities);
• State/territory of incorporation/formation or, for foreign entities, the U.S. jurisdiction where it first registered to do business;
• Internal Revenue Service (IRS) taxpayer identification number;
• For each “Beneficial Owner” and “Company Applicant”:

• Full legal name
• Date of birth
• Street address (must be a residential address for Beneficial Owners)
• A “unique identifying number” (valid passport/state ID/driver’s license)

Who is a Beneficial Owner?

An individual who, directly or indirectly:

• Owns or controls at least 25% of the ownership interests of such Reporting Company, regardless of the form such interests take (e.g., equity shares, a capital or profit interest, convertible instruments, options, etc.); or
• Exercises substantial control over the entity, including:
• “Senior officers” (e.g., President, CEO, COO, CFO, General Counsel or individuals performing similar functions);
• Individuals with the authority to appoint or remove senior officers or a majority of the directors (or similar body);
• “Decision makers” (individuals who, for any reason, have the ability to direct, determine, or exercise substantial influence over important decisions of the entity); and
• Any individual who has any other form of material control over the Reporting Company (e.g., general partners/managers or a VC investor capable of influencing important decisions)

Who is a Company Applicant*?

An individual who:

• “Directly files” the entity’s creation or registration document (must be identified by all Reporting Company that is required to report its Company Applicants); and
• (if more than one individual is involved) Is “primarily responsible for directing or controlling” such filing.

• Although the reporting requirements take effect on January 1, 2024, the deadline for filing an initial report varies, depending on when the entity was formed:
• After filing an initial BOI report, a company must submit updated reports within 30 daysof any change in beneficial ownership.

*Note: Required only for reporting companies formed after January 1, 2024

When are BOI Reports Due?

• Initial Reports

When Reporting Company formed:	When initial report is due:
Before January 1, 2024	By January 1, 2025
During 2024	Within 90 days of formation
After January 1, 2025	Within 30 days of formation

• Updates

• • After filing an initial BOI report, a company must submit updated reports within 30 daysof any change in beneficial ownership.

What are the penalties for failing to file?

• Civil and criminal penalties attach to both reporting and use/disclosure violations. The civil penalty for willful noncompliance of beneficial ownership reporting requirements is a fine of $500 per day, and criminal penalties include a fine up to $10,000, imprisonment, or both.
• The CTA prohibits:

• • Willful provision of false or fraudulent beneficial ownership information or identifying documents or failure to report or update required information; and
  • Knowing unauthorized use or disclosure of beneficial ownership information obtained from FinCEN.

• While Reporting Companies are generally responsible for compliance under the CTA, individuals may be held liable for noncompliance.
• Under a safe harbor provision, an entity can avoid liability (absent evidence of intentional evasion of compliance) by correcting inaccurate information within 90 days of submission.

What should companies be doing now?

• Managers of legal entities organized or registered to do business in the United States should consider:

• • Evaluating every entity within the organizational structure to determine which may be a “Reporting Company” and whether an exemption may apply;
  • Identifying each “Beneficial Owner” for entities that are “Reporting Companies” and, for those organized after January 1, 2024, the “Company Applicant(s);”
  • Collecting required information for the BOI Report(s) and preparing to file in accordance with the applicable deadline;
  • Maintaining a tracking system for Beneficial Owners so that timely update filings can be made going forward.
• Legal professionals should consider not only reporting obligations that apply to their clients but also their own potential obligations as “Company Applicants.”

As indicated above, the CTA and its implementing regulations have created a number of new risks and responsibilities – we understand the difficulty in sorting through these new requirements, let alone complying with them. If you have any questions about them, or how GableGotwals may be able to help you, please let us know.

Brooks A. Richardson 405-568-3310 brichardson@gablelaw.com	Tom C. Vincent II

This information is provided for educational and informational purposes only and does not contain legal advice or create an attorney-client relationship. The information provided should not be taken as an indication of future legal results; any information provided should not be acted upon without consulting legal counsel.