Corporate Transparency Act (CTA) Update
The Fifth Circuit Court of Appeals has issued a significant ruling related to the Corporate Transparency Act (CTA), reversing a previous decision and reinstating the district court's nationwide injunction. As a result, the enforcement of the CTA’s beneficial ownership reporting requirements is currently on hold while the court continues to evaluate the constitutionality of those provisions.
To break it down:
The CTA was designed to enhance transparency in the U.S. corporate landscape by requiring certain companies to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). These disclosures are intended to help prevent money laundering, terrorist financing, and other illicit activities.
What this means for companies: Until further notice, Reporting Companies (including many LLCs, corporations, and similar entities) are not mandated to file their beneficial ownership information reports. The injunction remains in place pending further legal proceedings on the constitutionality of the CTA's reporting obligations.
Next steps: The legal challenge will continue through the court system, with a final determination on the constitutionality of the reporting requirements yet to be made. Companies should stay tuned for any updates, especially if the case moves forward to the Supreme Court or results in further appellate rulings.
While reporting is not mandatory while the injunction is in place, Reporting Companies may choose to voluntarily report beneficial ownership information.
The Corporate Transparency Act (CTA)
The Corporate Transparency Act (CTA) became effective January 1, 2024 and imposes new requirements on small businesses.
The CTA affects approximately 33 million corporations and LLCs already formed, as well as any entity formed after January 1, 2024.
All entities created by filing a Certificate of Formation or Articles of Incorporation with the Secretary of State (Reporting Company) are required to file a report with the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN).
This report must include:
Information about the Reporting Company.
Information about the Beneficial Owners: any individual who directly or indirectly, exercises substantial control over the entity or owns 25% or more of the ownership interest in a reporting company.
Information about Company Applicants: the person who directly files the formation or registration document of the Reporting Company and/or the person who was primarily responsible for the filing.
A Reporting Company formed before January 1, 2024 must file its initial report no later than January 1, 2025.
A Reporting Company formed after January 1, 2024 must file its initial report within 90 days of formation.
The Reporting Company must report any changes to the initially report within 30 days of any changes taking effect.
Failure to comply with the reporting obligations may result in a fine of $500 for each day of noncompliance, up to a maximum of $10,000 and/or 2 years in prison.
The Reporting Company is responsible for filing the required reports. Zelvin Law, LLC can assist clients in navigating the complexities associated with the CTA. If you need assistance in preparing the initial report or have any questions , please contact Jennifer Zelvin McCloskey at jennifer@zelvinlaw.com or (302) 300-0461.
