Beneficial Ownership reporting deadline stayed by a Federal Court
December 6, 2024
A preliminary injunction against enforcement of the Corporate Transparency Act (CTA) and its beneficial ownership information reporting (BOIR) requirement was issued on December 3, 2024, by a Federal Court in Texas issued.
Under the terms of the CTA, any entity formed or registered to do business in the U.S. prior to January 1, 2024, which is not exempt is required to file a BOIR by January 1, 2025.
Quote from the decision in Texas Top Cop Shop v. Garland et al. (E.D. Tex., No. 4:24-cv-00478), the “… reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
The District Court’s reasoning is that Congress’ powers do not extend to the implementation of the CTA. The court did not rule that the CTA is unconstitutional. Rather, it ruled that FinCEN is not allowed to enforce the CTA until a final determination is made regarding the constitutionality of the CTA. The court specified that the scope of the injunction should be nationwide and not limited to the plaintiffs in the case.
So far FinCEN has not issued a statement regarding the deadline, but it is advisable to remain ready to file BOIRs in the event the injunction is lifted, overturned or amended.
Corporate Transparency Act imposes a duty for companies to report their beneficial owners
Corporate Transparency Act imposes a duty for companies to report their beneficial owners
The Corporate Transparency Act (CTA) was enacted in 2021 to combat illicit finance. A key piece is the duty to report the beneficial owners of companies doing business in the US, which kicks off in 2025. Since this will impact a large number of startups and small businesses, here’s a concise summary of its key points:
Purpose: The CTA aims to enhance transparency by requiring certain business entities (referred to as “reporting companies”) to disclose information about their “beneficial owners.” A beneficial owner is an individual who directly or indirectly owns 25% or more of a reporting company or is a senior officer (C-suite, board members or anyone with similar authorities).
Who must report: All companies doing business in the US, although there are many exemptions, most of which involve businesses already under some regulatory scrutiny, such as banks, public utilities, SEC-filers, etc. Perhaps the most widely applicable exemption is the “large operating company”, which exempts companies that meet all three of the following: (a) have 20 or more full-time employees in the US (b) have an operating presence in the US, and (c) have gross sales or receipts of more than $5,000,000 reported in its Federal income tax filings.
When to report: Existing Companies: Reporting companies that were created or registered to do business in the United States before January 1, 2024, must file their initial reports by January 1, 2025.
What to Report: Reporting companies must provide information about each beneficial owner, including their name, date of birth, address, and identifying number (from specific documents like a U.S. driver’s license or passport). An image of the document must also be submitted. Exempted companies do not have to make any filing.
How to Report: by filing at https://boiefiling.fincen.gov/
New Companies: Reporting companies formed in 2024 have 90 calendar days to file after receiving notice that their creation or registration is effective.
Company Applicants: Companies created on or after January 1, 2024, must also report information about the individuals who formed the company.
Penalties: Delayed reporting can be fined by up to $591 per day, in addition to civil penalties of up to $10,000 and two years of imprisonment.
If you have any questions or need help with complying with this, feel free to reach out!
