BLOG

May 7, 2024
By Anthony Cammarata Jr.

The Corporate Transparency Act (the “CTA”), which went into effect on January 1, 2024, is a wide-reaching government action that will impact the vast majority of businesses and business owners across the country. Navigating the complexities of the CTA can be overwhelming for businesses, especially for small business owners who may lack the resources and expertise to ensure compliance. This article is meant to provide an overview of the CTA’s basic requirements and should be supplemented with legal advice from counsel with knowledge of the CTA’s full requirements and applicability.

What Does the CTA Require?

The CTA mandates that all applicable companies file reports called “Beneficial Ownership Information Reports” (“BOI Reports”) into a national database created and maintained by the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Department of the Treasury. BOI Reports must include the full legal name, date of birth, residential address, and a form of identification for each Beneficial Owner and Company Applicant of the applicable company. BOI Reports must also be monitored and updated whenever any required information changes.

A “Beneficial Owner” of a company is anyone who either (i) owns twenty-five percent (25%) or more equity interest in the company, or (ii) exercises substantial control over the business and operations of the company, including, without limitation, the company’s CEO, CFO, COO, General Counsel, Executive Director, President, Chairman of the Board, and other officers or those holding similar titles. This means that an employee with no actual ownership interest in a company could be deemed a Beneficial Owner.

A “Company Applicant” is anyone who exercises control over or actually performs the filing to form the company through the applicable secretary of state or other governmental authority.

To Whom Does the CTA Apply?

The rules and regulations established by the CTA will apply to all limited liability companies, corporations, closely-held corporations, limited partnerships, and any other companies registered through a secretary of state or other governmental authority. While there are some limited exceptions to the foregoing list of companies that must comply with the reporting requirements under the CTA, the vast majority of the small businesses that serve as the backbone to our economy will be subject to these requirements. Even if a company has only a single owner, is ignored for federal income tax purposes, or is simply a real estate holding company, it will still likely qualify as a mandatory reporting company.

What Are the Deadlines for Compliance?

• For companies formed prior to January 1, 2024: The deadline to file a BOI Report in the FinCEN database is January 1, 2025.
• For companies formed in 2024: The deadline to file a BOI Report in the FinCEN database is ninety (90) days after formation of the company.
• For companies formed after December 31, 2024: The deadline to file a BOI Report in the FinCEN database is thirty (30) days after formation of the company.

Once the BOI Report is filed: All BOI Reports must be updated within thirty (30) days of any change of information included therein. For example, if the CEO of a company moves, the BOI Report must be updated to show the CEO’s new residential address within thirty (30) days of the move.

What Are the Penalties for Non-Compliance?

The penalties for failure to file or update a BOI Report when required, or for providing inaccurate information on a BOI Report, are fines of $500 per day (up to a maximum of $10,000) as well as imprisonment for up to two (2) years for willful violations. Individuals who file BOI Reports can also be held personally liable if they do not affirmatively investigate to determine if the information they include on a BOI Report is true and accurate. In this instance, ignorance or simple mistakes are not a defense against the draconian punishment set by the CTA.

Is Anyone Challenging the CTA?

The administrative headache caused by the CTA will be particularly borne by small business owners, and it has consequently been the subject of legal actions from the National Small Business Association (“NSBA”) and other organizations. The case brought by the NSBA is currently pending appeal, with arguments centered around the constitutionality of the CTA's reporting requirements and the undue burden it imposes on small businesses. On March 1, 2024, the US District Court for the Northern District of Alabama declared the CTA unconstitutional and suspended its enforcement, but only against the NSBA members and the plaintiff in the case, Mr. Isaac Winkles, specifically.

While most companies remain subject to the CTA’s requirements for now, it is unclear what the broader effects of the ruling in the NSBA case may be. Already, another party in the Northern District of Ohio has filed a similar lawsuit seeking a nationwide injunction against the enforcement of the CTA. We could see the CTA eliminated altogether or at least narrowed in a more appropriate way. In the meantime, however, businesses should still take proactive steps to ensure compliance with the CTA while continuing to monitor developments.

We recognize the CTA represents a significant shift in the regulatory and compliance landscapes for businesses and that the new law may be daunting for some business owners to deal with. Accordingly, if you are a business owner or are otherwise responsible for the management of a business, please familiarize yourself with the CTA’s deadlines and requirements and contact legal professionals with experience in dealing with the CTA for assistance and guidance.

Anthony Cammarata Jr. is a partner with Flint, Connolly & Walker, LLP currently assisting clients in various corporate and other civil matters. He is experienced in a range of legal issues affecting business owners, including the regulatory and corporate governance implications of the Corporate Transparency Act.