What Office is Similar to the Secretary of State Under the CTA?
A key question when determining whether an entity is a reporting company under the Corporate Transparency Act (CTA) is whether the entity was formed by the filing of a document with “a secretary of state or any similar office under the law of a State or Indian tribe.” 31 CFR 1010.380(c)(i) (emphasis added). With respect to a foreign reporting company, the test is whether the foreign entity was registered to do business in “any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.” 31 CFR 1010.380(c)(ii) (emphasis added). While the vast majority of reporting companies will either be formed by the filing of a document with a secretary of state (or registered to do business in the state through a filing in that office), the question arises of what kind of entity might be formed, or registered to do business, by the filing of a document in a “similar office”?
What is a Similar Office?
FinCEN released its Final Rule on beneficial ownership, entitled “Beneficial Ownership Information Reporting Requirements” on September 30, 2022 at 87 Fed. Reg. 59,498. FinCEN amended the Final Rule twice before its effective date on January 1, 2024. As practitioners have encountered gaps in the published regulations at 31 CFR 1010.380, many have gone back to FinCEN’s discussion in its September 30, 2022 release for clues and guidance on interpretation.
FinCEN referred to the word “similar office” 35 times in its 2022 release of the Final Rule.
In connection with its discussion of the definition of reporting company, FinCEN wrote that “because corporate formation is governed by state or Tribal law, and because the CTA does not provide independent definitions of the terms “corporation” and “limited liability company,” FinCEN proposed to interpret these terms by reference to the governing law of the domestic jurisdiction in which a reporting company that is a corporation or limited liability is formed.”
FinCEN noted that it received comments seeking “a range of clarifications to the proposed definition of domestic reporting company.” Id. FinCEN also wrote that commenters “request clarification of the term “similar office.” Id. Ultimately, FinCEN adopted the language from its proposed rule without modification.
FinCEN expressly declined to define the term “similar office” but offered some thoughts in response to commenters’ questions:
“Some commenters identified states in which a department or agency other than the secretary of state handled business entity filings. These commenters asked for greater clarity regarding the term “similar office.” FinCEN notes that some states call the state agency that has primary responsibility for handling filings that create legal entities under state law something other than a “secretary of state.” FinCEN also notes a similar office may include a department or agency that has functions similar to a secretary of state to the extent they receive filings that create new entities. But a determination as to whether an office is “similar” depends on context. One commenter noted that in some states entities such as trusts file relevant documents with state courts for certain purposes and asked that FinCEN expressly include state courts within the meaning of the term “similar office.” As with types of entities, FinCEN declines to incorporate into the final rule either a one-size-fits-all definition or a list of qualifying offices that create entities by filing with the state office, given the varying state practices. FinCEN, however, will consider additional guidance as appropriate. 87 Fed. Reg 59,498 at 59,538.”
Consequently, there is no bright line test as to what constitutes a “similar office.” If the office is one that receives filings for the creation of new entities, it probably is a similar office to the secretary of state. Practitioners will need to consider the particular circumstances in each case.
Two Examples of Similar Office
Since the guidance in the Final Rule is scant, it is not clear what kinds of entities can be created by the filing of a document in a state office that is similar to a secretary of state.
FinCEN’s discussion gave two examples in footnote 185 of its September 2022 release of the Final Rule. It referenced the District of Columbia Department of Consumer and Regulatory Affairs and Virginia State Corporation Commission as offices where individuals may form corporations and LLCs by the filing of a document.
Apart from these two examples, I have not been able to find another example of a business entity that is formed by the filing of a document with a state office that is similar to, but separate from, the office of the secretary of state. (If you know of one, please send your suggestion to info@fincenreport.com and I will update this post and give you credit if you like.)
Conclusion
The vast majority of domestic reporting companies will be corporations and LLCs formed by the filing of a document in the office of a secretary of state. Foreign reporting companies will be those entities formed outside the U.S. that register to do business by filing an application with a secretary of state. There may be some edge cases where the filing takes place in a “similar office” to the secretary of state, but apart from the two examples noted above, there are no other obvious examples.
Prudent practitioners will consider edge cases by looking to the purpose and intent of the CTA, which is to build a comprehensive and useful database of beneficial ownership. If there is an entity that is brought into existence under state law by the filing of a document in a state office, FinCEN is likely to consider that state office to be similar to a secretary of state.
