Murray LLP - Legal Update November 7, 2023

 

Clients should be aware of the following very important legal changes that will come into force shortly.  

 

Beneficial Ownership Information Reporting for U.S Entities (or entities doing business in the U.S) - Corporate Transparency Act 

 

Under the U.S. Corporate Transparency Act for new entities formed after 1 January, 2024, the person establishing the entity (“Applicant”) will have 30 days to file beneficial ownership information report (BOI Report) with FINCEN.  Generally, the filing with FINCEN will require identity information, including tax information, on the persons owning 25% or more of the beneficial ownership of the entity including images of their identity documents e.g., passports.  It includes U.S. formed (or doing business in the U.S.) LLCs, limited partnerships, corporations or similar entities formed by filing with a Secretary of State in one of the U.S. states.  Entities in existence prior to January 1, 2024 will have until January 1, 2025 to file their BOI Report.  There is no annual filing requirement, but amendments have to be filed within 30 days.  The Applicant (i.e., person filing the reports or forming the entity) will be required to report their own information to FINCEN.  Certain entities are considered non-reporting such as registered investment advisors, funds advised by them, mutual funds etc.  The BOI reports will not be public.    The law provides for civil and criminal liability for not complying (up to $10,000 fine and 2 years imprisonment) for willfully providing false information or failing to provide the information.   New York and California are considering their own version of beneficial owner reporting that would need to be made in their states.  

 

Private funds advised by SEC registered investment advisors are likely to be exempt from filing BOI reports.   Private funds advised by advisers who are not registered with the SEC will likely have to make the reports, and make BOI filings of any amendments.  Therefore, non-US fund managers not registered with the SEC, should plan to comply with the requirements.  

 

Therefore, if you have a U.S. LLC, limited partnership, corporation or other entity you should plan to comply with the new law.  If you are considering establishing a new entity in 2024 onwards you should expect to provide more information about the owners of the entity and expect it to take longer to form any new entity while the provider forming the entity collects the information.  

 

FINCEN who will be responsible for the collecting the information, and where filings will be made, have set up a webpage.  You should look at that webpage for future updates as well.  

 

https://www.fincen.gov/boi

 

New SEC Rules for Private Funds 

 

The new SEC rules applying to private fund advisers were adopted by the SEC on August 23, 2023.  The rule changes are quite significant in the way that they limit the ability of investment advisors to manage funds, and some of the rules also apply to managers who are not SEC-registered, e.g. Exempt Reporting Advisers and a Foreign Private Advisor.  

 

The new rules will affect investment advisors (SEC-registered and non-SEC registered), in that they will restrict their ability to offer preferential rights to certain investors (i.e. the rights commonly offered in side letters) and mandate certain disclosures.  Managers will be required to provide certain disclosures and advance written notice of preferential treatment.  The rules also restrict advisers from charging or allocating certain fees and expenses to private funds.  SEC registered advisers will have to provide quarterly reports on compensation, fees and expenses.  One of the major changes is to require SEC- registered investment advisors to have their private funds audited and deliver the audited financial statements to investors.  

 

One area the new rules will regulate is adviser-led secondaries.   SEC-registered investment advisors involved in adviser-led secondaries transactions will need to obtain and distribute a fairness opinion.  

 

Investment Advisors not registered with the SEC (e.g., Exempt Report Advisers or foreign investment managers) should take particular note of the implementation of the rules and required disclosures relating to preferential treatment of investors.  These rules will apply to them as well.  

 

Investment Advisors have 12-18 months to comply with the new rules.  The compliance date depends on the particular rule and the size of the adviser.

 

The SEC has published a very simple one page guide to the new rules: 

 

https://www.sec.gov/files/2023-oasb-private-fund-adviser-rules-chart.pdf

 

Amendment to CPLR 2106, New York 

 

Effective 1st January 2024, New York will change its requirements for sworn affidavits to be filed in New York State Courts, as they need no longer be notarized.  Individuals having to sign a sworn statement for filing in New York State courts will now be able to affirm their statements as true under penalty of perjury and need not visit or swear the affidavit before a notary.  This brings New York in line with the Federal practice on affirmations and the practices of other states.  It will eliminate the need for litigants and other parties to visit a notary.  

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Should you require further information please contact Murray LLP at (213) 465 2637 or contact@murrayllp.com.  

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