Welcome to the fifth edition of On The Docket. This edition is dedicated to just a single topic: the Beneficial Ownership Information Reporting Rule. What follows is a very brief overview of the Beneficial Ownership Information Reporting Rule and its specific applicability to registered investment advisers, along with hyperlinks to further resources.
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– Chris
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New year, new regulation – the Beneficial Ownership Information Reporting Rule
Background
The Beneficial Ownership Information Reporting Rule (the “Reporting Rule”) implements part of the Corporate Transparency Act (the “CTA”), a federal regulation promulgated by the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).
This Reporting Rule is not promulgated by the SEC or any state securities authority.
Overview
In a nutshell, the Reporting Rule requires many companies (“reporting companies”) such as corporations and LLCs to disclose certain information about the beneficial owners of such reporting companies (beneficial ownership information, or “BOI”) to FinCEN through an online portal. It also requires the submission of certain information about company applicants.
A “beneficial owner” is an individual who owns or controls at least 25% of a reporting company or has substantial control over the reporting company, and a “company applicant” is an individual who directly files or is primarily responsible for the filing of the document that creates or registers the reporting company.
BOI to be Reported
- Full legal name
- Date of birth
- Residential street address
- Identifying # and image of either a U.S. passport, state drivers license, state identification, or, if none of these exist for the beneficial owner, a foreign passport.
The reporting company’s full legal name, trade names, physical address, jurisdiction of formation, and IRS taxpayer ID will also need to be submitted.
Tip – consider applying for a “FinCEN Identifier,” which allows beneficial owners (particularly those that beneficially own multiple companies) to submit their FinCEN Identifier in lieu of the BOI that would otherwise need to be reported for each reporting company.
Initial Filing Deadlines
For reporting companies created before January 1, 2024: January 1, 2025.
For reporting companies created on or after January 1, 2024: within 90 calendar days of company creation.
For reporting companies created on or after January 1, 2025: within 30 days of company creation.
Investment Adviser Specifics
Companies that are SEC-registered investment advisers are exempt from submitting BOI reports to FinCEN.
Companies that are state-registered investment advisers are NOT exempt from submitting BOI reports to FinCEN (unless another exemption applies).
State-registered advisers are thus subject to an increased burden even though they ostensibly report the same ownership information in Schedule A and B of Form ADV Part 1, and state-registered advisers actually report more overall information in Form ADV as compared to an SEC-registered investment adviser (e.g., state-registered advisers are required to file Part 1B of Form ADV Part 1, which is N/A to SEC-registered advisers).
Remember: if you hold your ownership interest in your RIA through a holding company or personal S Corp – such holdco may be a reporting company even if the ownership interest is in a SEC-registered adviser that is itself exempt.
Non-Compliance Penalties
Civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.