It’s easy to say- maybe even fashionable to say- that criminals use companies in the United States to carry out illegal activities. The terms “illegal” and “illicit” show up 118 times in a rule issued yesterday by the Treasury Department concerning a new mandate for companies to report the names, ranks, and serial numbers of their owners. The new rule, entitled “Beneficial Ownership Information Reporting Requirements,” becomes the law of the land on January 1, 2024.
The rule is supposed to identify the presence among us of drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States. The rule does so by requiring companies- new and old- to report both the beneficial owners of the company and, for new companies, to report the persons responsible for creating the company, called “company applicants.”

The rule applies to a “domestic reporting company” which is a corporation, limited liability company (LLC), or any entity created in the United States, as well as to a “foreign reporting company” formed in a foreign country and registered to do business in the US. Under the rule, twenty-three types of entities are exempt from the definition of “reporting company.” In consequence, reporting companies will include (subject to the specific exemptions) limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities are generally created by a filing with a secretary of state or similar office. Other types of legal entities, including certain trusts, are excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. The creation of most trusts typically does not involve the filing of a document with the state.

Under the rule, a beneficial owner is somebody who, directly or indirectly, either (1) exercises substantial control over a company, or (2) owns or controls at least 25 percent of the ownership interests of a company. The rule defines the terms “substantial control” and “ownership interest.” The rule exempts five types of individuals from the definition of “beneficial owner.” In defining how one exercise substantial control over the company, the rule sets forth a range of activities that could constitute substantial control of a company. This list captures anyone who makes important decisions on behalf of the entity, regardless of their title or affiliation with the company. The name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document) must be provided for each beneficial owner.

The rule defines a company applicant to be only two persons:

1- the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States, and

2- the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
The rule, however, does not require companies existing at the time of the effective date of the rule to identify and report on their company applicants. In addition, companies formed or registered after the effective date of the rule also do not need to update company applicant information.

Companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports, while companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. Companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.