The Corporate Transparency Act and How It Impacts Your Business
February 17, 2022 | Georgia Kellogg
Update December 19th, 2024
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc., et al. v. Garland, enjoining the federal government from enforcing the Corporate Transparency Act (CTA) and its reporting deadlines.
On December 13, 2024, the Department of Justice (DOJ) filed an Emergency Motion for Stay Pending Appeal in the Fifth Circuit requesting an expedited briefing schedule and a ruling “as soon as possible, but in any event no later than December 27, 2024, to ensure that regulated entities can be made aware of their obligation to comply before January 1, 2025.” Reporting companies should continue monitoring developments in the coming days in case the January 1, 2025 deadline for filing is reinstated.
In January of 2021, as part of its initiative to crack down on illicit activities commonly associated with shell companies, Congress passed the Corporate Transparency Act (the “CTA”). Under the CTA, entities formed or registered to do business in the United States will be required to report various information concerning beneficial ownership of the company. The Financial Crimes Enforcement Network (“FinCEN”) has been tasked with preparing the regulations that will govern the beneficial ownership reporting requirement and provide the necessary oversight to ensure these obligations are complied with.
With some exceptions, the reporting obligations under the CTA is estimated to impact hundreds of thousands of entities, including corporations, limited liability companies, partnerships, and various non-profit organizations. The most significant impact will be felt by small and mid-size companies who did not previously have any mandated federal reporting responsibilities.
It is important to note that these reporting requirements will not go into effect until FinCEN finalizes its regulations. At this time, it is unknown when this will be. On December 7, 2021, FinCEN released proposed regulations, which can be viewed here: https://www.federalregister.gov/documents/2021/12/08/2021-26548/beneficial-ownership-information-reporting-requirements.
Once in effect, companies will have one year from the regulations’ effective date (subject to change pending the final rules) to comply with the requirements. For entities formed after the effective date, the beneficial ownership reporting must be completed within 14 days of entity formation. Reporting companies will be required to report any changes in beneficial ownership to FinCEN within one year of such changes occurring.
Companies subject to these new regulations will be required to submit a beneficial ownership information report identifying each beneficial owner of the entity and company applicant, along with the individual’s full legal name, date of birth, current residential or business address, and a “unique identifying number from an acceptable identification document.” For an individual, a state-issued driver’s license number or unexpired passport number would suffice. In addition, reporting companies will be required to submit information about itself. Although the CTA does not specifically identify the details to be reported about the company, these guidelines will be included in FinCEN’s regulations once they are finalized.
While it is unlikely that the CTA’s reporting requirements will commence before 2023, it is important for you to be aware of these impending obligations and plan accordingly to ensure proper and timely compliance with the CTA. Failure to adhere to these reporting standards, or the willful provision of false or fraudulent beneficial ownership information carries significant penalties. A violation of these obligations is subject to a civil penalty of up to $500.00 each day until the violation is remedied, up to a maximum of $10,000.00, and up to two years in prison, or both, for a criminal violation.
Barna, Guzy & Steffen, Ltd. continues to closely monitor the developments in this area. If you believe your business may be impacted by these requirements, one of our knowledgeable corporate attorneys would be happy to navigate you through this process. Contact us today.