Passed in 2021 as part of the federal Anti-Money Laundering Act of 2020 and effective January 1, 2024, the Corporate Transparency Act (CTA) is new legislation that requires many business entities, owners and applicants to file corporate transparency reports with beneficial ownership information (BOI) by January 1, 2025. Failure to comply can lead to stiff penalties, including up to two years in prison as well as fines and civil penalties. 

UPDATE: on December 3, 2024 a US District Court in Texas temporarily enjoined enforecement of the CTA, so that the reporting deadline of January 1, 2025 is currently stayed. The preliminary injunction currently applies nationwide.

As of December 9, 2024, FinCEN acknowledged on its website that, in light of the preliminary injunction, reporting companies are not currently required to file beneficial ownership information (“BOI”) reports with FinCEN and are not subject to liability if they fail to do so.

That being said, a reporting company may choose to voluntarily submit the BOI reports. If the preliminary injunction is stayed or overturned, it’s uncertain how much – if any – additional time reporting companies will be provided to submit BOI reports. It is prudent for reporting companies to continue to gather the relevant information for their BOI reports and be ready to file on short notice.

What is the Corporate Transparency Act?

The CTA was passed by Congress in an effort to combat illicit activity, including money laundering, terrorist financing, and other fraudulent and malicious behavior. Under the CTA, many businesses operating in the United States are now required to disclose certain information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). 

Which Entities Must Report Beneficial Ownership Information with FinCEN? 

The majority of domestic and foreign entities registered to do business in the U.S. are impacted, though many small and medium-sized businesses are feeling the effects acutely as some are privately held businesses that have not had to report ownership details to the federal government before. 

Domestic reporting companies include any corporation, LLC or similar entity that was created by filing with the secretary of state or similar office. Foreign reporting companies include any legal entity formed under the laws of a foreign country that is registered to do business in any state within the United States. 

While the majority of domestic and foreign entities are required to report beneficial ownership information with FinCEN, there are some exemptions. For a list of 23 entity types that are exempt from reporting, refer here to the Federal Register website.    

Who is Considered a Beneficial Owner Under the CTA?

The term “beneficial owner” is central to the CTA. It includes individuals with substantial control over a reporting company or those owning or controlling at least 25% of its ownership interests. In most small businesses, this includes the primary business owner, partners and investors. These individuals must disclose ownership information to FinCEN.

Contact our Team at Sirulnik Law for Help

The CTA represents a significant shift toward greater transparency in corporate ownership.

Navigating these changes requires a thorough understanding of reporting obligations, exemptions and the law. For help complying with BOI reporting requirements, consult our experienced business law attorneys at the Law Offices of Alex D. Sirulnik, P.A.