The Financial Crimes Enforcement Network (FinCEN) released new guidance on beneficial owners, company applicants and reporting company exemptions under the Corporate Transparency Act (CTA). Find the complete list of FinCEN’s Beneficial Ownership Information (BOI) Frequently Asked Questions here. Two notable updates include (1) clarifying the meaning of “control” under the subsidiary exemption and (2) new considerations on who qualifies as a reporting company’s company applicant.
1. Subsidiary Exemption
Under the subsidiary exemption of the CTA, a reporting company is exempt from reporting BOI if it is controlled or wholly owned, directly or indirectly, by certain exempt entities. Previously, there was no clear definition of “control” for purposes of this exemption. The newly released guidance specifies that partial control is insufficient for a subsidiary to qualify for the exemption. The guidance explicitly states that to qualify, the subsidiary ownership interest “must be fully, 100 percent owned or controlled by an exempt entity.” Under this interpretation, joint ventures and joint venture subsidiaries that are owned, directly or indirectly, by one or more non-exempt entities must submit BOI reports if any non-exempt parent has decision rights, such as approval over major decisions.
2. Company Applicant Definition
Another significant takeaway from the guidance is the clarification of who is considered a reporting company’s company applicant. (As a reminder, the maximum number of company applicants is two). After noting that the person signing the formation document is irrelevant to this analysis, FinCEN illustrated three scenarios:
- An attorney completes the paperwork to form an entity using information provided by the client, and then subsequently sends the paperwork to a corporate service provider who files it with a secretary of state. The company applicants are (1) the attorney, because they are primarily responsible for directing or controlling the filing, and (2) the individual at the corporate service provider who directly files the document.
- An attorney instructs a paralegal to complete the entity formation documents, and the paralegal sends the completed documents to a corporate service provider for filing. The company applicants are (1) the attorney, because they play the primary role of directing or controlling the filing, and (2) the individual at the corporate service provider who directly files the document. The paralegal is not a company applicant.
- A client directly requests a corporate service provider to file entity creation documents. The company applicants are (1) the client, because they are primarily responsible for directing or controlling the filing, and (2) the individual at the corporate service provider who directly files the document.
As FinCEN continues to release guidance regarding the CTA, we encourage a thorough review of your company’s compliance practices to ensure alignment with new guidance and to assess any potential impacts on your reporting requirements.
If you have any questions, please contact Matt Peurach, Matt Flower, Lili Martin-Mashburn, or Rebecca Arrington.
