Banking and Financial Services Attorneys: Helping Institutions Navigate the Changing Landscape

Late yesterday, a federal court out of the Eastern District of Texas issued a nationwide injunction against enforcement of the Corporate Transparency Act (“CTA”). The lawsuit was brought by The National Federation of Independent Business and a handful of reporting entities. The Court based its decision on its assessment that Congress lacked the authority to impose the CTA, and that the CTA likely violates the constitutional rights of business owners (note that the court did not declare the CTA unconstitutional, only that it likely could be declared unconstitutional in a future ruling). Given this finding, the Court ordered a nationwide injunction, covering all reporting companies, which suspends the obligation to report and prevents the Government from enforcing penalties associated with the CTA.

Due to the timing and broad application of the Court’s Order, some of our clients have asked whether they need to worry about their CTA reporting requirements. While the ruling temporarily halts the legal obligation to report at the present moment, this is not the final word on the CTA. In fact, we have seen similar rulings concerning the CTA earlier this year, and yet the obligations to report have remained. This decision will almost certainly be appealed to the 5th Circuit in very short order and could possibly appear before the Supreme Court. Additionally, Congress or FinCen could take further action in response to the ruling before the end of the year.

Given these circumstances, the obligation to report could return (and the year-end deadline reinstated) at a moment’s notice. For these reasons, and because the civil and criminal penalties for non-compliance can be severe, we are recommending our clients continue to comply with their CTA reporting requirements for the time being.

We will continue to closely follow all legal challenges to the CTA and keep our clients updated as new developments arise.

Tuesday, January 16th, 2024

This publication is intended to notify you of a significant change in federal law that will impact nearly everyone operating a business through a legal entity such as a corporation, limited liability company, limited partnership or other similar entity. The Corporate Transparency Act (the “CTA”) is now in effect as of January 1, 2024, and all required companies should be prepared to comply with the new reporting requirements.

In an effort to combat money laundering, terrorism financing, and other illegal activities, Congress passed the CTA, which requires certain non-exempt companies (“Reporting Companies”) to file a Beneficial Ownership Information Report (“BOI Report”) with the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). The BOI Report filed with FinCEN should contain information about the reporting company itself and identifying information about every person who is a beneficial owner or who controls the Reporting Company, as well as any person who forms or registers a Reporting Company. The penalties for noncompliance include civil and criminal penalties for anyone who willfully fails to report or update BOI information or provides false information in a BOI Report. Civil Penalties include a $500 fine per day (not to exceed $10,000) and criminal penalties include imprisonment for up to two years.

• Date of Formation: Deadline
• Reporting Companies Created Before January 1, 2024: No later than January 1, 2025
• Reporting Companies Created/Registered on or After January 1, 2024, and Before January 1, 2025: Within 90 calendar days of the earlier of the date on which the reporting company receives actual notice that its creation/registration has become effective OR the date a secretary of state (or similar office) first provides public notice, such as through a publicly-accessible registry, that the domestic company has been created or the foreign reporting company has been registered.
• Reporting Companies Created/ Registered on or After January 1, 2025: Within 30 calendar days of the earlier of the date on which the reporting company receives actual notice that its creation/registration has become effective OR the date a secretary of state (or similar office) first provides public notice, such as through a publicly-accessible registry, that the domestic company has been created or the foreign reporting company has been registered.
• Updating Prior Reports: Within 30 calendar days of the date of change of any information previously provided to FinCEN.
• Correcting Prior Reports: Within 30 calendar days of the date the reporting company becomes aware, or has reason to know, that any required information contained in any report was inaccurate when filed and remains inaccurate.

FinCEN believes these deadlines will provide sufficient time for reporting companies to understand how to comply with any regulatory obligations. Nonetheless, navigating the CTA may take substantial time and effort as it will require a fact-specific inquiry into any applicable CTA exemptions and requirements, company structures, ownership control features, and much more. To obtain more information or seek assistance in navigating the CTA, please contact your Sprouse Shrader Smith attorney.

Additional information regarding the BOI Reports and the reporting requirements may also be found on the FinCEN website.

This publication provides only a general summary of the Corporate Transparency Act and its requirements and is not intended to, and does not, provide legal, compliance or other advice to any individual or entity.