DECEMBER 2024 UPDATE:
On December 3, 2024, a Texas federal court issued a nationwide injunction prohibiting the enforcement of the Corporate Transparency Act (CTA), which would have required 32.5 million U.S. companies to report their beneficial ownership information (BOI) to FinCEN by January 1, 2025.
The court ruled the CTA likely unconstitutional, citing its infringement on constitutional rights and federalism principles. It described the law as “quasi-Orwellian” and a dangerous expansion of congressional power, with the potential to harm companies by compelling compliance.
The court’s decision, part of Texas Top Cop Shop, Inc., et al. v. Garland, et al., prevents the federal government from enforcing the CTA or its regulations nationwide, relieving companies from the January 2025 BOI reporting deadline. The ruling halts penalties for noncompliance and applies to both existing and newly created entities.
While the decision is a preliminary injunction and subject to appeal, it remains enforceable unless overturned by higher courts. Appeals to the Fifth Circuit and potentially the U.S. Supreme Court are anticipated, but for now, companies are not required to comply with the CTA.
Here’s a summary of what you need to know now:
- On March 1, 2024, a federal court in Alabama declared the Corporate Transparency Act (CTA) unconstitutional in the case of National Small Business Association v. Yellen.
- The ruling suspended the requirement for small businesses to disclose beneficial owners to FinCEN, along with enforcement actions and compliance concerns.
- On December 3, 2024, a federal court in Texas expanded on this precedent by issuing a nationwide injunction against the enforcement of the CTA.
- The ruling barred the federal government from enforcing the law or its regulations, including the January 1, 2025, deadline for beneficial ownership reporting.
- Companies across the U.S. are not required to comply with the CTA pending further legal developments.
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What is Beneficial Ownership Information?
The BOI regulation aimed to create a comprehensive beneficial ownership registry for U.S. legal entities. The CTA, aimed at combating money laundering, mandates LLCs to disclose beneficial ownership information to FinCEN. This ruling originates from a lawsuit filed by the National Small Business Association, representing over 65,000 businesses nationwide. The Act was intended to address concerns related to illicit activities facilitated by opaque ownership structures, prompting the need for a robust reporting mechanism.
Beneficial ownership information refers to the identifying details of individuals who directly or indirectly own or control a company. It’s aimed at revealing the true individuals behind a business, as opposed to just the named directors or shareholders. The Corporate Transparency Act was enacted to address concerns related to illicit activities facilitated by opaque ownership structures, prompting the need for a robust reporting mechanism.
What is Beneficial Ownership Information reporting?
Beneficial ownership information reporting refers to the disclosure of individuals who ultimately own or control a company or other legal entities. When authorities or regulatory bodies have access to this data, they can:
- Better trace and understand the flow of money
- Identify potential risks
- Prevent illicit activities
The reporting typically includes details about individuals who own or control a certain percentage of shares or voting rights in a company, have significant influence or control over the company, or play a key role in its decision-making processes.
The reporting landscape: who, when, and how?
WHO: What entities are required to collect beneficial ownership information? Generally, if you’ve formed an LLC, S-Corp, or C Corp, a BOI report is mandatory unless you qualify for one of the 23 exemptions outlined in the Corporate Transparency Act (CTA). Sole proprietorships and most general partnerships are likely exempt, given their absence of a formation document filing requirement.
What information is required for Beneficial Ownership?
Your BOI report entails crucial details about your company, such as its legal name, address(es), and taxpayer identification number. Equally significant is the disclosure of personally identifiable information for each beneficial owner, defined as individuals with at least 25% ownership or substantial control. The required information includes names, birthdates, addresses, and identifying numbers from official documents.
Who can access BOI information?
Concerns about the security and confidentiality of the disclosed information are valid. FinCEN restricts access to authorized entities, including federal and state law enforcement, national security agencies, and certain financial institutions, with reporting company consent. Stringent protocols and secure systems are mandated to safeguard the information from unauthorized access or misuse.
Staying compliant with updates and corrections
The responsibility doesn’t end with the initial filing. If any of your information changes, you must submit an updated report within 30 days. Similarly, inaccuracies discovered post-filing necessitate a corrected report within the same timeframe.
Exceptions and exemptions
While the majority of small businesses might not qualify for exemptions, it’s crucial to understand the 23 exemptions allowed by the Corporate Transparency Act. For example, large operating companies with over 20 full-time employees, $5 million in gross receipts, and a physical U.S. office presence, can qualify as exempt entities. Notably, FinCEN emphasizes that entities already heavily regulated, such as publicly traded companies and financial institutions, are also exempt. Certain types of inactive entities that were in existence on or before January 1, 2020, are also exempt.
Where can I find more information about BOI reporting?
FinCEN will continue to provide guidance on how to submit beneficial ownership information.
Frequently Asked Questions: https://www.fincen.gov/boi-faqs
Small Entity Compliance Guide: https://www.fincen.gov/boi/small-entity-compliance-guide
FinCEN’s BOI Webpage: https://www.fincen.gov/boi