Update on Beneficial Ownership Information Reporting Requirement Under the Corporate Transparency Act Note Reporting Requirement on Hold
On December 3, 2024, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction prohibiting the enforcement of the Corporate Transparency Act (“CTA”). In Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.), the Court opined that the CTA was likely unconstitutional. Until the case is decided on the merits, the Court also imposed a stay on the filing of the Beneficial Ownership Information Reports (“BOI Reports”) that were to be done by most businesses by January 1, 2025. Consequently, unless the preliminary injunction and/or stay is lifted, or another court overrules this Court’s actions, reporting companies are not required to comply with the CTA’s January 1, 2025 BOI Report filing deadline.
The CTA is a federal law designed to enhance transparency in business ownership with the goal of combating money laundering and other illicit financial activities. Under the CTA, most small- and medium-sized companies (i.e., companies with less than 21 full-time employees and revenue less than $5,000,000 in the prior year) are required to report identifying details about the individuals who own or control the business. Identifying details include name, address, and either a driver’s license or passport number together with a copy of a driver’s license or passport. The data was to be maintained by the federal Financial Crimes Enforcement Network (“FinCEN”) and used solely for law enforcement and regulatory purposes, and would not available to the public.
Prior to the issuing of the preliminary injunction and stay in Texas Top Cop Shop, companies in existence before January 1, 2024 were required to file a BOI Report with FinCEN by January 1, 2025. Companies that came into existence in 2024 had 90 days following notification from the State that their filing had been accepted to file with FinCEN. Companies that would have come into existence after 2024 had 30 days following notification from the State that their filing had been accepted to file with FinCEN. Reporting companies that failed to comply faced significant penalties, including fines of up to $500 per day for late submissions. However, certain types of entities were exempt from reporting BOI information.
Although the preliminary injunction and stay are in effect, it is still prudent for companies that would be required to file a BOI Report to collect the necessary information for filing, in the event the stay or injunction is lifted.
If you have any questions about the CTA, the filing of BOI Reports, or the status of the preliminary injunction and stay, our business attorneys are available to answer them.