You may have heard a lot of discussion over the Corporate Transparency Act over the last 12 months, particularly in recent days. If you are a small business owner, you may be wondering if this is something you need to worry about. The short answer to that question is twofold: (1) probably but (2) maybe not just yet. To discuss how this law could impact your business, contact a Northern Virginia small business attorney for guidance.
What Is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) is legislation that went into effect on January 1, 2024 that required almost all corporate entities to register “beneficial ownership information” (BOI) with the Financial Crimes Enforcement Network (FinCEN) of the federal Treasury Department. The legislation was adopted in order to combat the financing of international terrorism through using domestic corporate entities. The CTA would therefore require almost any corporate entity, including corporations, LLCs, and LLPs, to file ownership information with FinCEN.
What Information Does the CTA Require?
The purpose of the Act is to identify who owns the company. This can include the following:
An individual who directly or indirectly has a significant ownership stake in the company
An individual who has significant influence or control over the company’s decisions or operations
An individual who owns at least 25% of the shares of the company
Owners of the company are expected to report names, addresses, birth dates, identification numbers and other identifying information.
Determining ownership interests is not always easy, particularly with smaller or family-owned businesses. If you have questions about who qualifies as an owner and what information should be reported, reach out to a Northern Virginia small business attorney.
What Happens if I Don’t Comply?
The consequences of noncompliance are severe. Businesses that fail to comply with the CTA’s requirements face civil penalties of $59.00 per day. Willful non-compliance or providing fraudulent information can expose you to a fine of up to $10,000.00 and criminal penalties including incarceration.
What Is My Current Reporting Obligation?
While the purpose of the CTA seems unobjectionable, many have objected to the Act’s extraordinarily broad reach and have therefore raised constitutional challenges. The resulting litigation has caused delays in implementation of the Act’s reporting requirements and created a great deal of uncertainty. While businesses were expected to comply beginning in 2024, a federal district court in Alabama determined that the Act was unconstitutional on March 1, 2024 and enjoined its enforcement. That case has been appealed to the 11th Circuit. Similar cases are pending on appeal in the 4th, 5th, and 9th Circuits. As a result, business owners have not had to worry about their reporting obligations while the litigation remains unresolved.
On December 23rd, however, a panel of the 5th Circuit Court of Appeals recently granted the government’s request that they be allowed to proceed with enforcing the Act. The decision was immediately controversial as it would require businesses to file their BOI by January 1, 2025. FinCEN extended this deadline to January 13th, small consolation to business owners who now had to worry about compliance over the holidays. Thankfully, the full Court of Appeals for the 5th Circuit reversed the panel decision and reinstated the injunction that prohibits the government from enforcing the reporting obligations on December 26th.
The bottom line is this - business owners have been granted another reprieve from their BOI reporting obligations. Nonetheless, you should keep a close eye on the pending litigation and have your information ready to file as it could be required on a short timeline if the government prevails in the pending litigation.
Talk to a Small Business Attorney at The Herndon Law Firm Today
Small businesses face unique challenges when it comes to meeting their state and federal compliance obligations. To discuss your needs and how we can help, contact us today via phone or email for a free consultation.
Resources
U.S. Chamber of Commerce: What Every Small Business Needs to Know About the Corporate Transparency Act
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