The Corporate Transparency Act

In 2021 Congress passed the 2021 National Defense Act which included the “The Corporate Transparency Act,” a law that will require millions of the nation’s smallest business entities to report beneficial owner information (BOI) to the Financial Crimes Enforcement Network (FinCEN) starting on January 1, 2024. (FinCEN is a bureau of the U.S. Department of the Treasury.) The law was enacted to combat “illicit actors” who often set up small LLCs and corporations as shell companies or fronts to hide the identities of owners who are engaged in money-laundering, financing terrorism, and other illegal activities.

Companies that were created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports. Companies created or registered after January 1, 2024, will have 90 days after creation or registration to file their initial reports.

The following small businesses will be required to file BOI reports:

• Have 20 or fewer full-time employees and less than $5 million in sales, and
• Are LLCs, limited liability partnerships, corporations, business trusts, or other entities created by a filing with any state’s secretary of state or tribal jurisdiction, OR
• Foreign LLCs and corporations that are registered to do business in any state or tribal jurisdiction.

Organizations with more than 20 full-time employees and over $5 million in annual gross receipts are excluded from reporting requirements. There are some exemptions to reporting, including nonprofit corporations, but most exemptions only apply in rare circumstances.

FinCEN defines “Beneficial Owner,” as any individual who, directly or indirectly, either

• exercises substantial control over a company (i.e., can make important decisions for the company) OR
• owns or controls at least 25 percent of the ownership interests.

To file the report, just go to BOI E-FILING (fincen.gov) and follow the directions. There is no cost for the filing.

UPDATE:

The U.S. District Court for the Northern District of Alabama ruled in National Small Business United v. Yellen that the Corporate Transparency Act is unconstitutional. The Court granted the plaintiffs’ motion for summary judgment because “the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”

The memorandum opinion can be found here.

This ruling will most likely be appealed, so stay tuned to see if the CTA remains law.  In the meantime, small businesses have to fiollow the CTA.