The Corporate Transparency Act: What You Need to Know

October 15, 2024

Since the Corporate Transparency Act (“CTA” or the “Act”) took effect on January 1, 2024, business owners, associations, and professional advisors have raised questions, frustrations, and filed a flurry of lawsuits seeking to block its enforcement.

As we enter the fourth quarter of 2024, businesses face the reality of having to comply with the Act’s filing requirements by year-end, or risk significant civil and/or criminal penalties.

What is the CTA?

In short, the CTA is a piece of federal legislation enacted on January 1, 2021. The Act was created to provide law enforcement with a database of beneficial ownership information to prevent money laundering and other illicit activity. The Act requires that certain companies report specific identifiable information for every individual who is deemed to be a “beneficial owner” of the company. “Beneficial owners” are individuals who own at least twenty-five percent (25%) of the company, or who exercise “substantial control” over said company.

The Act requires all non-exempt companies to file a Beneficial Ownership Information Report (“BOIR” or “BOI Report”), which discloses certain information about each beneficial owner. Such required information includes the beneficial owner’s name, date of birth, residential address, and information from (including an image of) a government-issued identification document.

Companies formed or registered before January 1, 2024, are required to file the BOIR by December 31, 2024. Failing to file may result in civil penalties, including fines of more than $500 per day. A deeper examination of the CTA and its requirements can be found here.

Pushback from Businesses

Business owners and advocacy groups have pushed back against the CTA. They cite privacy concerns, constitutional arguments, and potential cybersecurity threats caused by storing sensitive personal information in a massive government database. Opponents also point to the unnecessary burden the Act can place on small business owners and argue that the law will not prevent illicit activity.

The backlash has led to multiple lawsuits in federal courts. Business owners and associations have brought suit in Alabama, Maine, Texas, Massachusetts, Michigan, and Ohio. As of today’s date, one such court ruled in the plaintiff’s favor. On March 1, 2024, the U.S. District Court for the Northern District of Alabama held in Nat’l Small Bus. United v. Yellen that Congress had exceeded its powers under the U.S. Constitution in its attempt to govern businesses formed under individual state law. The court ruling, however, applies only to the plaintiffs in that case. For the rest of the country, the CTA is still in effect.

What does that mean for business owners?

Though there may be a national repeal of the CTA in the future, it has not yet happened. As such, non-exempt businesses must file the BOI Report by December 31, 2024. Reports show that an estimated 30 million businesses are required to file by year-end, and only five percent (5%) have done so.

If you are among the ninety-five percent who are taking a “wait and see” approach, proceed with caution. Filing the BOIR can be a relatively straightforward process, depending on the number of beneficial owners within a company. In many cases, however, the process of determining who qualifies as a “beneficial owner” can require deeper analysis, and failing to report all beneficial owners may lead to issues with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury, the federal agency that administers the CTA.

The bottom line is this: despite being shrouded in murky uncertainty, CTA compliance is currently required for non-exempt entities, and those who fail to report do so at their own peril.

Our team is here to answer any questions you have regarding the CTA. You can also learn more here.

Carolyn Lavin DeVaughn is an Associate Attorney with Gross Shuman P.C. She concentrates her practice in the areas of corporate law, banking and finance, and estate planning. Carolyn works with businesses across a wide range of industries on all aspects of their business operations. She also works closely with clients on to securing the funding to complete complex commercial real estate purchases, loans, and refinancing agreements. You can reach Carolyn at 716-854-4300 ext. 242 or [email protected]