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Corporate Transparency Act: State of the Law and Beneficial Ownership Reporting Requirements

March 25, 2024 Articles

Key Points:

  1. Despite ongoing legal challenges, the Corporate Transparency Act (CTA) generally remains in effect and enforceable. Clients should continue to abide by its regulations.
  2. Initial reports for entities formed in 2024 are due within 90 days of the date on which the entity receives confirmation of its formation or registration from the Secretary of State or comparable office. Filings for entities formed in January 2024 will be due in April 2024.
  3. For reporting companies formed before 2024, a wait-and-see approach may be the most practical path forward. Initial filings for such entities are due by January 1, 2025.

Overview

The federal statute known as the Corporate Transparency Act went into effect on January 1, 2024. The CTA requires reporting companies to make initial and ongoing disclosures to the Financial Crimes Enforcement Network, a division of the U.S. Department of Treasury (FinCEN) regarding the personal information of certain individuals who beneficially own and control the reporting companies. Willful failure to abide by the disclosure requirements of the CTA could result in civil and criminal penalties, including fines of up to $10,000, imprisonment for up to two years, or both.

Entities organized in U.S. and foreign jurisdictions may be deemed reporting companies under the CTA and subject to its ongoing reporting requirements. There are 23 exemptions from the definition of “reporting company,” and if an entity meets the requirements of any exemption, it will not be subject to the reporting requirements for so long as it satisfies the exemption requirements. If at any time it fails to meet an exemption, it may be subject to the reporting requirements. Please refer to Farella's CTA Guide for details regarding all 23 exemptions.

Initial Reports and Ongoing Disclosures

If a reporting company was formed or foreign registered prior to January 1, 2024, its initial report is due by January 1, 2025. 

If a reporting company is formed or foreign registered during the calendar year 2024, its initial report is due within 90 days of the date on which it receives confirmation of its formation or registration from the Secretary of State or comparable office.

If a reporting company is formed or foreign registered after the calendar year 2024, its initial report is due within 30 days of the date on which it receives confirmation of its formation or registration from the Secretary of State or comparable office.

If any reported information changes, the reporting company must report the change information within 30 days of the change.  Changes would include transfers of ownership interests, changes in senior officers, as well as changes to a beneficial owner’s personal reported information (i.e., their name, residence, renewal or change of driver’s license or passport).

All reports and updates are made through FinCEN’s Beneficial Ownership Information website: fincen.gov/boi.  There are no fees charged by FinCEN to make any filing or update.

Legal Challenges

On March 1, 2024, Judge Liles C. Burke of the U.S. District Court of the Northern District of Alabama issued a memorandum opinion and final judgment in National Small Business United v. Yellen (No. 5:22-cv-01448-LCB (N.D. Ala. 2022)) that declared the CTA unconstitutional and permanently enjoined the Treasury Department from enforcing the statute against the specific plaintiffs in that case. This case is currently on appeal in the 11th Circuit, and FinCEN has stated that reporting companies other than the particular individuals and entities subject to the court’s injunction are still required to comply with the CTA and file beneficial ownership reports. Therefore, we recommend that clients continue to abide by the requirements of the CTA, while taking a practical approach and delaying filing initial reports until closer to the applicable deadline while the challenges to the CTA are being adjudicated and official guidance is being developed.

Farella Braun + Martel created a CTA guide as a way of evaluating whether an entity in your organization is a reporting company and completing the reporting requirements if you have a reporting company. Please reach out to your Farella attorney if you have any questions on the CTA or need any assistance with compliance. 

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