UPDATE:
As of January 12, 2025, the enforcement of the Corporate Transparency Act (CTA) has been blocked once again by the Fifth Circuit Court of Appeals, meaning that businesses are currently not required to meet the January 13 reporting deadline that would have mandated the disclosure of corporate and personal information to the government. This ruling comes after a series of legal back-and-forths regarding the CTA’s implementation, with the latest injunction reinstated on December 26, 2024.
If you did not file your beneficial ownership report before the latest injunction, you are not subject to penalties at this time due to the suspension of enforcement. However, it is essential to stay informed about ongoing legal developments, as the Fifth Circuit is scheduled to hear arguments on this matter on March 25, 2025. Depending on the outcome, compliance requirements may be reinstated.
Non-compliance with the CTA can lead to significant penalties if enforced. Previously, businesses that failed to file reports or provided false information could face civil penalties of up to $500 per day and criminal penalties including fines up to $10,000 and imprisonment for up to two years. However, these consequences are currently on hold due to the recent legal developments.
In summary, while filing obligations under the CTA are temporarily suspended, businesses should prepare for potential reinstatement of these requirements in the near future.
Original (Outdated) Article Below
The Fifth Circuit Court has reinstated the Corporate Transparency Act (CTA) after overturning a lower court’s injunction that had previously blocked its enforcement. This law requires approximately 32.6 million active companies in the U.S. to submit their private ownership information to a central database managed by the Financial Crimes Enforcement Network (FinCEN) under the Treasury Department.
Following this ruling, all companies established before 2024 must file their reports with the Treasury by January 13, 2025. Companies formed in 2024 are required to submit their reports within 90 days of their formation. According to Brown Advisory, “Enforcement of the Corporate Transparency Act has been reinstated along with its impending January 1, 2025 filing deadline.” The reports will include crucial legal information about the company, its owners, and those who create or register the entity.
Despite this progress, Forbes notes that a prolonged legal battle may still be on the horizon, particularly with potential changes in administration that could impact the CTA’s implementation. The estimated compliance cost is projected to be around $22.7 billion in the first year and $5.6 billion annually thereafter.
The U.S. government and various advocacy groups have long advocated for a central registry of beneficial ownership to combat money laundering. However, critics raise concerns about privacy risks and additional regulatory burdens on businesses, arguing that criminals are unlikely to voluntarily provide their information for such a registry.
Business Types Required to Register
Under the CTA, several types of entities must register and report their beneficial ownership information:
– Limited Liability Companies (LLCs): All LLCs must comply unless they qualify for specific exemptions.
– Corporations: This includes both C-corporations and S-corporations formed or registered in the U.S.
– Partnerships: General and limited partnerships are also required to comply.
– Non-Profit Organizations: Certain non-profits, including political entities like the Libertarian Party of Mississippi, must register despite their non-profit status.
– Foreign Entities: Any foreign entities doing business in the U.S. may also be subject to these reporting requirements.
Entities formed before January 1, 2024, have until January 13, 2025, to file their initial beneficial ownership reports with FinCEN. New companies formed after this date will need to submit their reports within 30 days of formation or registration.
Registration Process
Entities required to comply with the CTA must submit their beneficial ownership information through FinCEN’s online filing system by completing Form FinCEN 114, which captures essential details about the company and its beneficial owners, including:
– Legal name of the entity
– Business address
– Names and contact details of beneficial owners
– Identification numbers (e.g., Social Security number, passport number)
Penalties for Non-Compliance
Failure to comply with the CTA can result in significant penalties. Businesses that do not file their reports or provide inaccurate information may face:
– Civil penalties: Up to $500 for each day of non-compliance.
– Criminal penalties: In cases of willful violation, fines can reach up to $10,000, along with potential imprisonment for up to two years.
These penalties underscore the importance of timely and accurate reporting, as non-compliance can lead to substantial financial burdens on businesses.
Dissolution and Reporting Obligations
Dissolving a company does not exempt it from reporting obligations under the CTA. Any entity that existed as a legal entity on or after January 1, 2024, must still file a beneficial ownership report even if it has since been dissolved. This requirement applies regardless of when dissolution occurred.
To properly dissolve a company while satisfying compliance with the CTA, an entity must:
1. File dissolution paperwork with the relevant jurisdiction.
2. Receive confirmation of dissolution.
3. Pay any required taxes or fees.
4. Wind up all affairs, such as liquidating assets and closing bank accounts.
Entities that completed their dissolution before January 1, 2024, are exempt from reporting requirements. However, those that have only partially completed the dissolution process must still comply with CTA reporting obligations until all steps are finalized.
In summary, businesses must take proactive steps to ensure compliance with the Corporate Transparency Act’s requirements, including proper registration and understanding the consequences of non-compliance or dissolution.
At the start of 2025, concerns about privacy continue to grow amid these regulatory changes.
Read More (update)
[1] https://www.fisherphillips.com/en/news-insights/corporate-transparency-act-again-blocked-nationwide-all-filing-deadlines-again-suspended-december-26-2024.html
[2] https://www.skofirm.com/news/the-corporate-transparency-act-has-not-gone-away-bad-advice-and-penalties/
[3] https://www.mayerbrown.com/en/insights/publications/2024/12/fifth-circuit-reinstates-corporate-transparency-act-filing-requirements-fincen-provides-short-extension-to-year-end-compliance-deadlines
[4] https://www.dickinsonbradshaw.com/blogs-articles/2023/11/17/blog-series-what-is-the-penalty-for-noncompliance-with-the-corporate-transparency-act
[5] https://www.hklaw.com/en/insights/publications/2024/12/corporate-transparency-act-back-in-effect-but-with-extended-deadlines
[6] https://wegmanlaw.com/the-risks-of-non-compliance-with-the-corporate-transparency-act/
[7] https://www.ebglaw.com/insights/publications/corporate-transparency-acts-january-1-2025-deadline-looms-for-reporting-companies-existing-prior-to-2024
Read More
[1] https://www.davispolk.com/insights/client-update/fifth-circuit-grants-stay-preliminary-injunction-enforcement-corporate
[2] https://www.hklaw.com/en/insights/publications/2024/12/corporate-transparency-act-back-in-effect-but-with-extended-deadlines
[3] https://www.mayerbrown.com/en/insights/publications/2024/12/fifth-circuit-reinstates-corporate-transparency-act-filing-requirements-fincen-provides-short-extension-to-year-end-compliance-deadlines
[4] https://www.bipc.com/corporate-transparency-acts-january-1,-2025-filing-deadline-reinstated
[5] https://www.morganlewis.com/pubs/2024/12/corporate-transparency-act-fifth-circuit-lifts-nationwide-injunction-fincen-extends-filing-deadlines
[6] https://www.flastergreenberg.com/newsroom-alerts-Corporate-Transparency-Act-Update-Deadlines-Reinstated.html
[7] https://davisgraham.com/news-events/corporate-transparency-act-reporting-again-required-following-stay-of-preliminary-injunction/
[8] https://www.cooley.com/news/insight/2024/2024-12-24-us-corporate-transparency-act-reporting-requirements-back-in-effect-with-deadline-approaching
[9] https://www.skadden.com/insights/publications/2024/12/fifth-circuit-panel-stays-nationwide-injunction
[10] https://www.stinson.com/newsroom-publications-corporate-transparency-act-naionwide-injunction-stayed-new-filing-deadline-is-january-13-2025
[11] https://www.reuters.com/legal/government/us-appeals-court-allows-anti-money-laundering-law-be-enforced-2024-12-23/
[12] https://www.zerohedge.com/political/millions-companies-must-register-w-massive-us-database-jan-1-due-last-minute-court-ruling
[13] https://www.diligent.com/resources/blog/CTA-corporate-transparency-act
[14] https://www.formyplan.com/what-is-the-corporate-transparency-act/
[15] https://millerjohnson.com/publication/navigating-the-corporate-transparency-act-fincens-guidance-on-dissolved-entities/
[16] https://www.msk.com/newsroom-alerts-corporate-transparency-act
[17] https://www.skofirm.com/news/the-corporate-transparency-act-has-not-gone-away-bad-advice-and-penalties/
[18] https://www.faegredrinker.com/en/insights/publications/2024/7/entities-that-cease-to-exist-must-still-comply-with-the-corporate-transparency-act
[19] https://www.uschamber.com/co/start/strategy/small-business-corporate-transparency-act
[20] https://wegmanlaw.com/the-risks-of-non-compliance-with-the-corporate-transparency-act/
[21] https://dvoraklawgroup.com/corporate-transparence-act-reporting-for-dissolved-entities/