The Corporate Transparency Act (CTA), enacted in the United States on January 1, 2021, took effect on January 1, 2024. This legislation represents a significant shift for many small-to-medium-sized business owners, requiring them to report their “Beneficial Ownership Information” to the federal government for the first time. The CTA aims to empower the U.S. Department of the Treasury and its Financial Crimes Enforcement Network (FinCEN) to prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities by tracking individual ownership of U.S.-formed entities.

Under the CTA, reporting companies must disclose all "beneficial owners," a term that can be misleading. A beneficial owner is defined under the CTA as either (a) an individual who directly or indirectly owns or controls 25% or more of the company’s ownership interests or (b) an individual who exercises substantial control over the company. This latter category can include executives or individuals with significant influence over the company’s decisions, even if they do not own any part of it.

Filing a beneficial ownership information report involves submitting a government-issued form of identification. The CTA is not the first federal effort aimed at enhancing transparency in ownership and financial records; it follows similar initiatives such as the Bank Secrecy Act of 1970, the Patriot Act of 2001, and the Foreign Account Tax Compliance Act (FATCA), enacted in 2010.

Like its predecessors, the CTA has faced numerous legal challenges and criticisms. Common concerns include potential infringements on privacy rights and the burden of compliance on small businesses. Pending cases in states such as Maine, Massachusetts, Michigan, Ohio, and Texas could significantly impact the CTA's enforceability. Recent court decisions have further illustrated the uncertainty surrounding the Act’s future.

In National Small Business United v. Yellen (No. 5:22-cv-01448, N.D. Ala.), the Northern District of Alabama issued a final declaratory judgment stating that the CTA exceeds Congress's constitutional authority, thereby enjoining its enforcement against the plaintiffs (members of the National Small Business United) until the appeal is resolved. Conversely, in Firestone v. Yellen (No. 3:24-cv-01034, D. Or.), the U.S. District Court for the District of Oregon upheld the CTA's constitutionality, arguing that it is a reasonable exercise of congressional power in service of national security interests.

Given the ongoing legal ambiguities, business owners should take proactive steps to comply with the CTA's requirements. Preparing now not only ensures adherence but also enhances corporate governance and transparency.

Below are the important filing deadlines for reporting companies:

• Companies created or registered before 2024: January 1, 2025
• Companies created or registered in 2024: 90 days after formation/registration
• Companies created or registered after 2024: 30 days after formation/registration
• Any change to previously reported information: 30 days after the last BOIR filing

While 23 categories of entities are exempt from this requirement, the majority of small-to-medium-sized businesses should be ready to comply with the Act. There is no fee for filing a Beneficial Ownership Information Report (BOIR), but non-compliance can result in penalties of up to $500 per day and criminal penalties, including fines of up to $10,000 and imprisonment for up to two years for willfully providing false information or failing to report ownership changes.

BOIR submissions can be made using FinCEN's BOI Filing System.