
October 7, 2024
As the year draws to a close, many businesses face critical deadlines for compliance with the Corporate Transparency Act (CTA).
Effective since Jan. 1, 2024, the CTA is a key piece of federal legislation designed to increase corporate transparency and combat illicit activities such as money laundering, financing for terrorism and tax evasion.
To accomplish these goals, the CTA mandates that businesses report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).
For companies formed or registered before the law’s enactment – which is estimated to be more than 32 million – the Jan. 1, 2025, deadline to submit BOI reports is rapidly approaching.
Who must comply?
The CTA applies to a wide range of entities, including corporations, limited liability companies (LLCs) and other entities formed by filing with a state authority, such as the Secretary of State or Department of Financial Institutions in Wisconsin.
Small businesses, family-owned companies and even passive entities that hold real estate fall under the CTA’s purview.
Though there are some exemptions to BOI reporting under the CTA – such as for nonprofit entities, publicly traded companies and highly regulated entities like banks and insurance companies – it’s crucial for business owners to assess their classification and compliance requirements.
For the majority of businesses, compliance with the CTA is mandatory.
Understanding beneficial ownership
One of the central obligations of the CTA is for companies to disclose information about their beneficial owners.
A “beneficial owner” is defined as any individual who directly or indirectly owns or controls at least 25% of the reporting company or exercises substantial control over its operations.
This can include officers, directors or other senior managers.
Companies must submit detailed information about each beneficial owner, including their legal name, date of birth, residential address and a unique identifier (such as a passport or driver’s license number).
Entities formed after Jan. 1, 2024, must also report information for the individual(s) responsible for filing their formation documents, referred to as “company applicants.”
Reporting and deadlines
The CTA’s reporting requirements differ depending on when a business was formed.
Companies formed before Jan. 1, 2024, have until Jan. 1, 2025, to submit their BOI reports.
For entities created after the CTA went into effect, the BOI report is due within 90 days of their formation.
Starting in 2025, newly formed companies will only have 30 days to file their BOI reports.
The process for filing and accessing the Beneficial Ownership Secure Filing System (BOSS) is relatively straightforward, with FinCEN officials noting that most companies should be able to complete their BOI reports in about 90 minutes – including the time involved in obtaining the information required for the report.
Recent developments, legal challenges
Since the CTA’s enactment, FinCEN has been actively engaged in responding to inquiries regarding nuances in the law.
In 2024 alone, FinCEN has issued nearly 50 FAQs to clarify the law’s requirements.
However, many businesses continue to face challenges in interpreting the law, particularly around complex ownership structures and ambiguities within the CTA.
One major development this year was a successful constitutional challenge to the CTA by a small business group in the Northern District of Alabama (National Small Business United v. Yellen).
Though the court’s injunction applies only to the plaintiffs in that specific case, with BOI reports still being required for everyone else, it has added a layer of uncertainty to the broader CTA compliance landscape.
Penalties for non-compliance
The CTA imposes substantial penalties for reporting violations, including civil and criminal penalties of up to $500 per day for ongoing violations and fines of up to $10,000 with a maximum imprisonment of two years for willful non-compliance.
In addition to filing accurate initial reports, businesses must also update their information within 30 days of any changes to their beneficial owners or company applicants.
There is a 90-day safe harbor for correcting inadvertent errors, but businesses are strongly advised to file timely and accurate reports to avoid penalties.
Next steps for businesses
As the Jan. 1, 2025, deadline approaches, businesses should be proactive and prioritize taking steps now to ensure they are fully prepared to meet CTA compliance obligations.
Though the filing process may seem straightforward, gathering the necessary information – especially for companies with more complex ownership structures – can take time.
FinCEN has made it clear that there will be little leniency for businesses that fail to file on time, and with the potential for severe penalties, compliance is essential.
Therefore, it is imperative that businesses begin assessing their reporting requirements, gathering the necessary information and preparing to file accurate and timely BOI reports.