Corporate Transparency Act: Requirements for Small Businesses
K+H is committed to providing you with the latest information available on legal matters that can affect you and your business.
As the Corporate Transparency Act (CTA) is ever-evolving, please see below for the most up-to-date details and how we can help you stay compliant.
Current status as of February 19, 2025: A recent federal court ruling has lifted the final nationwide block on the Corporate Transparency Act (CTA), reinstating its beneficial ownership reporting requirements. Following a Supreme Court order that paused a similar injunction, the judge in the original case has now stayed his own order—allowing enforcement of the CTA to move forward while the Department of Justice appeals. With this decision, corporations and LLCs must now comply with FinCEN’s reporting requirements. If your business is impacted, we recommend preparing for compliance as soon as possible.
February 17, 2025: Reporting companies are not currently required to file beneficial ownership information, and also are not subject to liability if they fail to file this information while the Smith order remains in force. The Texas Top Cop Shop case is heading back to the Fifth Circuit, where the court will review its merits. Briefing is set to conclude by February 28, 2025, with oral arguments scheduled for March 25, 2025. Additionally, three other district court decisions are currently under appeal in the U.S. Courts of Appeals for the Fourth, Ninth, and Eleventh Circuits. Changes in Congress and the executive branch could also influence ongoing litigation related to the CTA.
January 24, 2025:The Financial Crimes Enforcement Network (FinCEN) has clarified on its website that reporting companies are not currently required to file beneficial ownership information with FinCEN, despite the Supreme Court’s decision in Texas Top Cop Shop. Companies will also not face liability for failing to file this information while the Smith injunction remains in effect.
January 23, 2025: Although the U.S. Supreme Court lifted the injunction blocking enforcement of the CTA in the Texas Top Cop Shop, Inc. v. Garland case, reporting obligations under the CTA remain suspended due to a separate nationwide injunction issued on January 7, 2025, by another federal judge in Texas in the Smith v. U.S. Department of the Treasury case.
December 27, 2024: In a statement posted to its website, FinCEN has confirmed that reporting companies are “not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force.”
December 26, 2024: The merits panel of the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) reinstated the nationwide preliminary injunction blocking FinCEN from enforcing the CTA.
December 23, 2024: The Fifth Circuit granted the U.S. government’s request for an emergency stay of a nationwide preliminary injunction blocking enforcement of the CTA. In response to the Fifth Circuit’s ruling, FinCEN has given reporting companies additional time to comply with CTA reporting obligations as follows:
- Reporting companies created or registered prior to January 1, 2024: new reporting deadline of January 13, 2025
- Reporting companies created or registered in the U.S. on or after September 4, 2024, that had a filing deadline between December 3, 2024, and December 23, 2024: new reporting deadline of January 13, 2025
- Reporting companies created or registered in the U.S. on or after December 3, 2024, and on or before December 23, 2024: reporting deadline extended an additional 21 days from their original filing deadline
- Reporting companies created or registered in the U.S. on or after January 1, 2025: reporting deadline is 30 days after receiving actual or public notice that their creation or registration is effective
December 7, 2024: FinCEN responded to the Court’s decision, providing that “reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.”
December 3, 2024: The U.S. District Court for the Eastern District of Texas issued a preliminary injunction blocking enforcement of the CTA and also stayed the impending January 1, 2025, compliance deadline.
Watch our short video above on how the Corporate Transparency Act could affect your small business.
What Is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) was enacted as part of the Anti-Money Laundering Act of 2020, which was implemented to buckle down on illegal activity such as corruption, money laundering, terrorist financing and tax fraud. The Act will require certain entities to file a report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This report identifies the entities’ beneficial owners and includes identifying information about those individuals. The Act further authorizes FinCEN to disclose this information to certain government authorities and to financial institutions for select purposes. Failure to comply may result in significant penalties, so it is critical for business owners to understand whether the CTA applies to them and the scope of reporting under the CTA.
Who Is Affected?
Businesses with less than 21 full-time employees and less than $5M in annual gross receipts or sales.
A business is defined as a legal entity, which includes any corporation, limited liability company, family limited partnership, and limited liability limited partnership that you own, or have any direct or indirect control of, regardless of whether the legal entity is currently active or conducting business of any kind. One who controls a legal entity under the current Act includes for corporations, shareholders, directors and officers, for limited liability companies, members and managers (and if the limited liability company has officers such as CEO, CFO, COO, President, Vice President, Secretary and/or Treasurer), and for limited partnerships, family limited partnerships, limited partnerships and limited liability limited partnerships, general and limited partners (and if the limited liability company has officers such as CEO, CFO, COO, President, Vice President, Secretary and/or Treasurer).
Note that family limited liability companies created for estate planning purposes holding securities and passive assets are included in the definition above.
What Reporting is Required?
For the above-mentioned entities, the CTA will require company information including full legal name (and any trade names), address, jurisdiction of formation, and taxpayer identification number (or equivalent issued by a foreign jurisdiction). Additionally, FinCEN requires submission of identifying information about any beneficial owners.
A beneficial owner is defined as any individual who fulfill at least one of the following:
- exercises substantial control over the entity
- controls 25% or more of the ownership interests of the entity
- who receives substantial economic benefits from the assets of the entity
Trustees of Trusts that own companies are considered beneficial owners.
The beneficial ownership information (BOI) that will be required for each owner includes:
- Full legal name
- Date of birth
- Current residential address
- Copy of photo ID, such as a Driver’s License
Changes to any information generally must be updated within 30 days after the change occurs or after the date the company became aware of an inaccuracy.
On September 18, 2023, FinCEN published its Small Entity Compliance Guide. The guide does not create any new requirements, rather it provides a detailed summary of how the BOI reporting rule works, particularly with respect to which types of companies are subject to the reporting rule, how the 23 categories of exemptions operate, and how to identify beneficial owners of a reporting company.
When Does This New Law Become Effective?
FinCEN issued a final rule on November 29, 2023 that extends the deadline for certain reporting companies to file their initial beneficial ownership information (BOI) reports with FinCEN. Reporting companies created or registered in 2024 will have 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports. Reporting companies created or registered before January 1, 2024, will continue to have until January 1, 2025, to file their initial BOI reports with FinCEN, and reporting companies created or registered on or after January 1, 2025, will continue to have 30 calendar days to file their initial BOI reports with FinCEN.
What Should Company Owners Do Now?
Affected entities may consider whether it is appropriate to develop processes to determine whether the reporting rule applies and to address whether newly created entities (e.g., subsidiaries, special purpose vehicles) are subject to the reporting rule. Newly formed companies, and persons or entities that are involved in or create such companies – such as entrepreneurs, venture funds and other investors and investment vehicles, law firms, and corporate services firms – also may need to develop processes to address BOI reporting rule requirements.
Reports – and updates – are required to be submitted through FinCEN’s e-filing system.
Contact us today if you would like K+H to submit your beneficial owner information on your behalf at [email protected] or 847-242-1777.
For more information regarding the new law and its requirements, please visit the FinCEN website: https://www.fincen.gov/boi