Most US companies are now subject to the reporting requirements of the Corporate Transparency Act (CTA), which took effect on January 1, 2024. Absent judicial or legislative intervention, non-exempt companies will need to file information about the individuals who own and control them by December 31, 2024, or potentially sooner in the case of companies formed in 2024.

Attorney Alexander Pyle

The CTA requires most companies that are formed in the United States or are registered to do business in the United States to report to the Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN) information about the company’s beneficial owners, control persons and, in the case of companies formed on or after January 1, 2024, the applicants that formed or registered the company. Information must be submitted electronically through an online portal operated by FinCEN. The CTA’s reporting requirements apply to corporations, limited liability companies, limited partnerships, limited liability partnerships, professional corporations, professional limited liability companies, business trusts and many other types of legal entities.

There are 23 categories of exempt entities under the CTA, many of which are for businesses that are otherwise regulated, such as banks, governmental entities, charitable organizations, investment advisors and investment companies. Other categories of exempt entities include public companies, large operating companies (specifically, companies with more than 20 full-time employees in the United States, with more than $5 million in revenues, and that have a physical office in the United States) and subsidiaries of certain exempt entities.

Non-exempt companies that were formed or registered in the US on or before December 31, 2023 must file an initial report by December 31, 2024. Non-exempt companies formed or registered during 2024 must file an initial report within 90 days, and non-exempt companies formed or registered in 2025 or later have 30 days to file. Reports must generally be updated within 30 days if the originally reported information changes. More detailed information about the CTA and its requirements can be found at FinCEN’s website, www.fincen.gov/boi.

The rollout of the CTA has generated opposition from some business organizations, members of Congress and others, who see the reporting requirements as onerous and intrusive. Court cases challenging the constitutionality of the CTA are pending in federal courts in Alabama, Maine, Michigan and Texas. Members of Congress have also filed bills in both chambers to repeal the CTA, while other members of Congress have expressed support for the CTA as a means to prevent illicit activities such as money laundering.

On March 1, 2024, the court hearing the Alabama case ruled that the CTA is invalid because it exceeded Congress’ constitutional powers. The court did not, however, order a general ban on enforcement of the CTA. Instead, the court ordered only that the CTA not be enforced against the plaintiffs in that case. The Department of the Treasury has appealed the court’s ruling, but a decision from the appellate court may not come until 2025. Ultimately, it is likely that the Supreme Court will be asked to rule on the CTA’s constitutionality.

In spite of the controversy surrounding the CTA, at present the CTA’s reporting requirements remain in effect for all non-exempt companies other than companies associated with the plaintiffs in the Alabama case. Non-exempt companies formed in early 2024 have already hit their 90 day filing deadlines, and more than 30 million companies will need to file CTA reports with FinCEN by the end of this year. Penalties for non-compliance can be steep. Each violation of the CTA can result in a civil penalty of up to $500 per day, a fine of up to $10,000 and up to 2 years of imprisonment.

With the CTA’s deadlines approaching, companies created or registered in the United States need to determine whether an exemption to the reporting requirement applies, and, if not, begin determining the information that will need to be submitted to FinCEN. While companies may decide to hold off on making filings until closer to the applicable filing deadline, it is possible and perhaps likely that there will not be a definitive determination about the fate of the CTA until 2025 or later. Unless and until there is judicial or legislative action affecting the act, business owners should plan to comply in a timely manner.

Alex Pyle serves as Chair of Sheehan Phinney’s Business Transactions Group. He has been representing emerging companies and entrepreneurial individuals and helping them achieve their business goals for 30 years. He works with clients in a variety of industries, including technology, media, life sciences, business services, education, real estate investment, and manufacturing.