What You Need to Know About the New Corporate Transparency Act Right Now

The Corporate Transparency Act (the “CTA”) requires certain businesses to report beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury. The CTA went into effect on January 1, 2024, but as described further below, there has been litigation since then challenging the constitutionality of the CTA. 

Who is Impacted by the CTA: The CTA requires any domestic entity, or any foreign entity registered to do business in any state (each a “Reporting Company”), to disclose the following information to FinCEN in a Beneficial Ownership Information Report (“BOI Report”):

(i)             Reporting Company’s legal name and/or trade name;

(ii)            principal place of business;

(iii)           jurisdiction of formation;

(iv)           taxpayer identification number; and

(v)            information regarding Beneficial Owners and Company Applicants.

For entities formed in 2024, the BOI Report must be filed with FinCEN within 90 days of the date of formation (this 90-day reporting deadline is shortened to 30 days for entities formed on or after January 1, 2025). For entities formed before January 1,2024, the BOI Report must be filed with FinCEN by January 1, 2025.

Despite the challenging litigation (described further below), the 90- day BOI Report deadline for entities formed in 2024 and the January 1,2025 BOI Report deadline for entities formed prior to 2024, both currently remain in effect. 

What is a Beneficial Owner: A “Beneficial Owner” is an individual who directly or indirectly (1) owns or controls not less than 25% of the ownership of the Reporting Company, or (2) exercises substantial control over the Reporting Company.

What is a Company Applicant: A “Company Applicant” is: (i) the person or persons who files the document establishing the Reporting Company (i.e., articles of organization or articles of incorporation) or (ii) the person or persons responsible for directing the filing to be made. Any Reporting Company formed prior to January 1,2024 is not required to provide Company Applicant information in the BOI Report to FinCEN.

Exemptions: There are 23 types of entities which are exempt from having to file a BOI Report with FinCEN, which include, but are not limited to, the following: (i) an entity with more than 20 full time employees in the US and with more than $5M in gross receipts on the entity’s prior tax return; (ii) regulated entities, including publicly traded companies; (iii) banks, broker dealers, insurance companies, and regulated investment companies and investment advisors; (iv) subsidiaries of exempt entities; and (v) “inactive entities”, which will include an entity if (1) it was in existence on or before January 1, 2020; (2) it is not engaged in an active business; (3) it is not directly or indirectly owned by a foreign person; (4) it has not experienced an ownership change in the preceding 12 month period; (5) it has not sent or received any funds greater than $1,000 either directly or through any financial account in which the entity or an affiliate has an interest, in the preceding 12 month period; AND (6) it does not hold any assets in the US or abroad, including any ownership in other entities.

Penalties: Penalties issued by FinCEN for noncompliance with the beneficial ownership reporting requirements may include: (i) civil and criminal penalties for willful violations, including fines of $500 a day and up to $10,000 and imprisonment for not more than two years, and (ii) civil and criminal penalties for unauthorized disclosure and use of beneficial ownership information.

CTA Litigation: In the recent case of National Small Business United v. Yellen, No. 5:22-CV-01448 (N.D. Ala.), a federal district court in the Northern District of Alabama, Northeastern Division, held that the CTA exceeds the Constitution’s limits on Congress’s power and is therefore unconstitutional. However, the decision of this case only applies to the plaintiffs of that case, and thus, all Reporting Companies other than such plaintiffs must continue to comply with the CTA. The Justice Department has filed its appeal of this decision, and FinCEN will continue to enforce the CTA while the appeal is pending. “Copycat” cases have also been filed challenging the constitutionality of the CTA, including the Ohio case of Robert J. Gargasz Co. LPA, et al. v Janet Yellen, et al., United States District Court for the Northern District of Ohio, Docket No. 1:23-CV-02468.

MRFL’s CTA Assistance: Meyers, Roman, Friedberg & Lewis is currently assisting clients with their CTA compliance by helping clients to: (i) determine if there is an applicable exemption from having to file the BOI Report with FinCEN; (ii) determine who are the Beneficial Owners of the entity; and/or (iii) prepare and file the BOI Report with FinCEN. If the January 1, 2025 filing deadline is not extended and if we are inundated with requests from clients for CTA assistance later this year, we may not be able to accept all the requests for CTA assistance. Thus, clients (especially those with many entities and/or complex ownership structures) are advised to contact their Meyers, Roman, Friedberg & Lewis attorney to commence CTA compliance for pre-2024 entities on or before September 30, 2024, or we cannot guaranty we will be able to accommodate requests. Clients intending to file their own BOI Report can begin the process by visiting https://fincen.gov/boi

Disclaimer: Please note that this Legal Update and the information contained herein do not, and are not intended to, constitute legal advice or legal representation or create (and is not a solicitation to create) an attorney-client relationship; instead, all of the information, content, and materials contained in this publication are for general informational purposes only and may not reflect current legal developments. You should not act upon any such information, content or materials contained in this publication without first seeking qualified legal counsel

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