What We Know So Far About Corporate Transparency, its Constitutionality and Compliance

February 29, 2024
Updated: March 8, 2024
By: Gabby Shirley, Amelia Miller, and Bobby Lindsey, Jr.

Reporting under the Corporate Transparency Act (“CTA”) became effective as of January 1, 2024. The reach of the CTA is extremely broad and it is likely that most small businesses will be deemed “Reporting Companies” required to register with the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Registration requires the submission of a Beneficial Ownership Information Report (“BOI Report”) on such Reporting Company’s “Beneficial Owners.”  Currently, for Reporting Companies formed on January 1, 2024, but before December 31, 2024, the BOI Report must be filed within ninety calendar (90) days of formation. For Reporting Companies formed prior to January 1, 2024, the BOI Report must be filed prior to January 1, 2025. For Reporting Companies formed after December 31, 2024, the BOI Report must be filed within thirty calendar (30) days of formation. A Reporting Company’s failure to file a BOI Report or to update an existing BOI Report could result in significant civil and criminal penalties.

A recent case, National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), brought in the Northern District of Alabama, challenged the constitutionality of the CTA and FinCEN’s implementation of the corresponding rules. On March 1, 2024, the District Court of Alabama ruled in favor of the plaintiffs holding that the CTA is unconstitutional based on the fact that it exceeded the limits imposed by the Constitution on the legislative branch.  It is important to note that the holding of unconstitutionality and the injunction imposed against enforcement is only applicable to the plaintiffs in the case and entities that were members of the National Small Business Association (“NSBA”) at the time of the ruling.  FinCEN issued a statement on March 4, 2024, that it will abide by the order and will not take enforcement action against the plaintiffs or applicable NSBA members. Therefore, from a compliance perspective, while the constitutionality of the CTA has been challenged, until a national legal consensus is reached with regard to the constitutionality of the CTA, clients qualifying as Reporting Companies should be prepared to comply with CTA requirements.

The following outlines a roadmap for CTA compliance, a summary of certain key provisions, and how Rosenberg Martin Greenberg LLP (“RMG”) may be able to assist.

CTA Compliance Roadmap

  • Does my company have to report (i.e., is my company a Reporting Company and is my company exempt)?
  • Who are my company’s beneficial owners?
  • Is my company required to report “Company Applicants”?
  • What information does my company need to report and how?
  • What are my company’s ongoing reporting obligations?

What is a Reporting Company?

Reporting Companies fall into two categories:

  • Domestic Reporting Companies – Corporations, LLCs, or other entities created by filing a document with the secretary of state or any similar office.
  • Foreign Reporting Companies – Non-U.S. entities that are corporations, LLCs, or other entities formed under the law of a foreign country and registered to do business in the U.S.

What are exempt entities?[1]

  • Large Reporting Companies
    • At least 20 full-time employees in the U.S.;
    • Operating presence in a physical office in the U.S. AND
    • Reporting more than $5 million in gross receipts or sales on its prior year tax return
  • Public Companies;
  • Inactive entities;
  • SEC registered entities (i.e., investment companies/advisors, venture capital fund advisers, and pooled investment vehicles operated by other exempt entities);
  • Insurance companies;
  • Certain other highly regulated/registered entities (i.e., banks, credit unions, bank holding companies, etc.);
  • Public accounting firms;
  • Tax-exempt entities and entities assisting tax-exempt entities (i.e., 501(c)(3)s, political organizations, and certain trusts);
  • Governmental authorities; and
  • Subsidiaries of certain exempt entities (i.e., that are wholly owned or controlled, directly or indirectly, by certain exempt entities).
    • On January 12, 2024, FinCEN issued additional guidance for interpreting the “control” prong in connection with the subsidiary exemption.
    • In order for the subsidiary exemption to apply, one or more exempt entities must wholly own all of the ownership interests of a subsidiary or wholly control all of the ownership interests of a subsidiary.
    • If an exempt entity controls some but not all of the ownership interests of the subsidiary, the subsidiary does not qualify for the exemption.

Who is a Beneficial Owner?

Any individual (natural person) who, directly or indirectly, either:

  • Exercises “substantial control” over the Reporting Company (i.e., senior officers, individuals who have authority to appoint or remove certain officers or a majority of directors or similar body; individuals who direct, determine, or have substantial influence over important decisions; or individuals who have any form of substantial control (i.e., the catch-all provision)); OR
  • Owns or controls twenty-five percent (25%) or more of the ownership interests of the reporting company.

“Ownership Interests” include:

  • Equity, stock or voting rights;
  • Capital or profits interests;
  • Convertible instruments;
  • Options or privileges (i.e., put/call rights, etc.); or
  • Any other mechanism establishing ownership (i.e., the “catch-all”).

Who is a Company Applicant?

  • Company Applicants are individuals who either: (1) act as direct filers in connection with the formation of the Reporting Company; OR (2) act as indirect filers who are primarily responsible for directing and controlling the filing. Up to two (2) Company Applicants are required to be reported.

When must a Company Applicant be Reported?

  • Reporting Companies created on or after January 1, 2024, must report Company Applicants.
  • Reporting Companies created prior to January 1, 2024, do not need to report Company Applicants.

What Reporting Company Information must be Reported to FinCEN?

  • Name; any trade names; principal place of business address in the U.S.; State, Tribal, or foreign jurisdiction of formation (if applicable, jurisdiction of first registration); IRS, TIN, or EIN.
  • Each Beneficial Owner’s and Company Applicant’s (if applicable), name; date of birth; current address; and an image of a non-expired passport, state driver’s license, or other identification document OR provide such individuals’ FinCEN identifier.

What is a FinCen Identifier?

  • A FinCEN identifier is a unique identifying number that FinCEN will issue to an individual or Reporting Company upon request after certain information is provided to FinCEN.
  • Any individual (including, but not limited to, Beneficial Owners and Company Applicants) or Reporting Company may obtain one.
  • Once obtained, Reporting Companies may use the FinCEN identifier in lieu of the personal information otherwise required.

Who will have access to BOI Report Information?

  • BOI Report information may be disclosed under the CTA to authorized recipients, including: federal agencies engaged in national security, intelligence, or law enforcement activity; State, local, and tribal law enforcement agencies with court authorization; foreign law enforcement agencies, judges, prosecutors, and other authorities that meet specific criteria; financial institutions with customer due diligence requirements and their supervisory regulators; and U.S. Department of Treasury officers and employees.
  • Authorized recipients must adhere to certain security and confidentiality protocols when BOI Report information is obtained.
  • BOI Report information may be re-disclosed only under certain specific and limited circumstances.

What are my company’s ongoing reporting obligations?

  • Any Reporting Company that stops qualifying for an exemption must file a BOI Report with FinCEN within thirty (30) calendar days after the date that the Reporting Company no longer meets the exemption criteria.
  • A Reporting Company that becomes exempt must update its BOI Report to show that it is no longer a Reporting Company within thirty (30) calendar days of the date it meets the exemption criteria.
  • A Reporting Company must submit an updated image of an identifying document if any of the individual’s required information on the previously submitted image (i.e., their name, date of birth, address, or unique identifying number) changes.
  • If a Reporting Company discovers any inaccuracy in a previously filed BOI Report, a corrected report must be filed with FinCEN within thirty (30) calendar days of the discovery of the inaccuracy. The penalties safe harbor under the CTA will be deemed satisfied if the corrected report is filed within ninety (90) calendar days after the date on which the inaccurate report was filed.

What is your role in this process? 

  • Your company is ultimately responsible for filing the initial BOI Report with FinCEN and for any subsequent filings required by FinCEN under the CTA (due to a change in ownership or the applicability or inapplicability of an exemption).
  • Your company is responsible for assembling any and all personal information with respect to beneficial owners and those who exercise substantial control and/or ensuring that any such individuals obtain FinCEN identifiers.
  • Your company is responsible for ensuring that any filings made with FinCEN are complete and accurate.
  • Your company will remain informed regarding any changes to CTA rules, regulations, and requirements and update BOI Reports as required under the CTA.

How can RMG assist?

  • The determination of whether your company is a Reporting Company and whether a specific exemption applies is a legal analysis in which RMG may be retained to perform.
  • Upon request, RMG may act as a Company Applicant and provide you with its applicable FinCEN identifier in order for your company to file the BOI Report with FinCEN.
  • Upon request, RMG may connect you with a third-party service provider who may file the BOI Report on your company’s behalf.
  • RMG may be retained to draft policies and procedures for your company that will assist you in obtaining personal information from beneficial owners and those with substantial control.
[1] A complete list of exempt entities is listed at 31 U.S.C. §5336(a)(11)(B).