The National Defense Authorization Act (NDAA) for Fiscal Year 2021 (H.R. 6395) conference report that passed the Senate will require private companies to report the beneficial ownership of their common stock in many circumstances. The legislation generally excludes public companies from reporting.
The provisions are buried in Title LXIV of the over 4,500 pages of the NDAA and are titled the "Corporate Transparency Act." The Act's requirements apply to perhaps the inaptly named "reporting companies" which is likely to cause confusion with reporting public companies. In any event, "reporting companies" include a corporation, limited liability company, or other similar entity that is:
- created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or
- formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.
The bill includes a host of exclusions from the definition of "reporting company" including certain public companies reporting under Section 12 and 15(d) of the Exchange Act, banks, credit unions, bank holding companies, money transmitters, broker dealers, stock exchanges, registered investment companies and the like.
The bill requires reporting of "beneficial ownership" which is defined to include, subject to certain exceptions, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:
- exercises substantial control over the entity; or
- owns or controls not less than 25 percent of the ownership interests of the entity.
Existing companies have two years after regulations are promulgated to report beneficial ownership. Reporting companies formed or registered after the effective date of regulations must at the time of formation or registration, submit to FinCEN a report that contains information which includes with respect to the beneficial owner:
- full legal name;
- date of birth;
- current, as of the date on which the report is delivered, residential or business street address; and
- a unique identifying number from an acceptable identification document; or
- FinCEN identifier in accordance with the legislation.
The legislation includes provisions limiting disclosure of collected information except where necessary.
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