On January 1, 2024, the Corporate Transparency Act (CTA) came into effect. The CTA represents a novel regulatory development in the United States that requires a broad class of legal entities (referred to as "reporting companies") to identify and report beneficial ownership information (BOI) on a confidential basis to a federal, centralized data repository (the BOI Reporting Rule). The CTA is enforced by a bureau of the Department of Treasury, the Financial Crimes Enforcement Network (FinCEN), the primary anti-money laundering enforcement authority in the U.S. With the CTA, the U.S. joins an international trend of subjecting legal entity ownership to more transparency, in the name of preventing and combating money laundering, terrorist financing, corruption, tax fraud, and other illicit activity—in particular, the use of shell companies to purchase assets (including real property) and to store and move money. While shell companies may be created for a legitimate purpose, there are also concerns that the use of some of these companies can facilitate crimes.

On March 1, 2024, a federal judge in the Northern District of Alabama, Northeastern Division, in the case National Small Business United, d/b/a the National Small Business Association, v. Yellen , ruled that the CTA was unconstitutional, at least as it applied to the plaintiffs in that case, which has created questions as to the ongoing validity of the law more broadly. The decision has been appealed.

Below, we outline the key facets of the CTA to serve as an initial guide. While the judge's ruling in National Small Business United has created questions as to the CTA's enforceability, it is unclear whether that ruling will survive on appeal or whether the scope of that ruling will remain limited to the plaintiffs in that case. For now, it remains worth exploring how the CTA works, and we have assumed for these purposes that the CTA will remain in effect, consistent with FinCEN's most recent guidance—more on this below. Please reach out to your Fenwick team if you have questions or want to learn more.

What You Need to Know

Deadlines for Compliance. There are three major deadlines that companies should be aware of:

  • Companies formed before January 1, 2024, have until January 1, 2025, to comply with the CTA's BOI Reporting Rule.
  • Companies formed after January 1, 2024, have 90 days following the date of formation to submit their initial BOI report to FinCEN.
  • All companies that have a change of circumstance that triggers a reporting obligation or that discover an error in previously submitted information will have 30 days to file a BOI report regardless of the date of formation but for companies formed before January 1, 2024, this obligation to update their BOI report does not kick in until an initial BOI report is filed.

Information That Is Collected by FinCEN.

Reporting companies will submit the names, dates of birth, addresses, and identification documents of individuals who have at least a 25% ownership interest in the reporting company, or exercise substantial control over the reporting company, to the new FinCEN BOI registry, called the Beneficial Ownership Secure System (BOSS), which can be accessed here. Information stored on BOSS is intended to be kept confidential by FinCEN and shared with various governmental authorities for limited purposes only (as detailed below).

Which Legal Entities Need to Comply?

Domestic reporting companies (i.e., corporations, LLCs, and other entities created by filing a document with a secretary of state or similar state office in the U.S.).

Foreign reporting companies (i.e., entities formed outside the U.S. that have registered to do business in the U.S. by filing a document with a secretary of state or similar state office).

Which Legal Entities Do Not Need to File BOI Reports?

The CTA contains a list of 23 exempt legal entities that do not need to file BOI reports. Key exemptions are detailed below.

Additional Resources.

FinCEN published its first set of guidance on BOI reporting requirements on March 24, 2023. FinCEN has also published an FAQ guide, which is regularly updated, as well as a separate guide for small business owners.

Below, we highlight various CTA provisions on which companies should begin concentrating. We also consider the practical implications that the CTA's compliance obligations impose around record keeping, privacy, and working with independent investors and other ownership interest holders to ensure company beneficial owners are accurate and up to date. Though the effective date of the BOI Reporting Rule has passed, many questions remain unanswered as to the novel regulatory elements of the CTA.

To read this article in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.