In July 2024, Treasury Secretary Janet Yellen testified before the House Financial Services Committee regarding the international financial system.
During Yellen's testimony, lawmakers expressed concerns about the readiness of small businesses to adhere to the beneficial ownership information (BOI) reporting requirements as mandated by the Corporate Transparency Act (CTA) and discussed the potential extension of the January 1, 2025 deadline.
The CTA went into effect on January 1, 2024. It mandates that companies established or registered to conduct business in the United States before that date and are not exempt from the law must submit a BOI report to FinCEN by January 1, 2025.
"In the hearing, Yellen stated that “FinCEN believes that the time frame is adequate for companies in existence before this year”. She also said that although CTA penalizes deliberate violations of the law, FinCEN was not seeking to take “gotcha enforcement actions against small businesses.”
More than 32 million companies affected
An estimated 32 million businesses must comply with the CTA’s reporting requirement.
The CTA was introduced as part of the Anti-Money Laundering Act of 2020 (part of the National Defense Authorization Act) and is intended to curb illegal activities, like money laundering, by promoting greater transparency into the ownership of companies that do business in the U.S.
The information provided to FinCEN includes personal details of individuals who have significant ownership or control over a reporting company.
Breaking this law can lead to a civil penalty of up to $591 per day for each day of violation, along with criminal penalties of up to $10,000 and two years in prison.
The CTA mainly impacts small businesses, as larger organizations and public companies are generally subject to other federal reporting requirements.
Businesses are not prepared
During the House hearing, Secretary Yellen confirmed that FinCEN has received 2.7 million reports and is engaged in a “very broad outreach effort.”
Still, a survey conducted by Wolters Kluwer CT Corporation earlier this year found that business and legal professionals are not fully prepared to meet their beneficial ownership reporting obligations.
The challenges in determining if an organization is subject to the reporting rule and the difficulty in identifying potential beneficial owners may significantly contribute to the low levels of preparedness.
To ensure any BOI filings are made promptly, small businesses should conduct a careful analysis to determine if they have reporting obligations for certain subsidiaries or affiliates.
Alabama ruling
In March 2024, a federal judge in Alabama ruled that the CTA was unconstitutional. U.S. District Court Judge Liles C. Burke granted summary judgment for the National Small Business Association (NSBA) and permanently prevented the government from enforcing the CTA against the plaintiff.
However, the Alabama ruling only applies to the plaintiffs in this case, specifically the NSBA and its existing members as of the March 1, 2024, ruling date. The CTA will remain in effect for all other non-exempt businesses.
All other businesses, including non-NSBA members and those who were not involved in the lawsuit, are required to continue adhering to the BOI reporting requirement under the CTA. FinCEN estimates this to include around 32 million companies.
Furthermore, businesses that join the NSBA after the March 1 ruling date are not within the scope of the ruling and must still comply with the CTA unless they meet one of its 23 exemptions.
To learn more read: Common misconceptions about Alabama's Corporate Transparency Act unconstitutional ruling.
State transparency laws
On March 1, 2024, Governor Hochul of New York signed Senate Bill 8059. This bill mandates that all LLCs formed under New York law (domestic LLCs) or registered to do business in New York (foreign LLCs) must file a beneficial ownership disclosure or an attestation of exemption with the New York Department of State.
New York is the first state to impose BOI reporting obligations based on the federal CTA. California and Maryland are actively considering their own bills, and other states may introduce similar legislation.
Learn more
To learn more about how CT Corporation can help, contact a CT Corporation service representative or visit our Corporate Transparency Act resource page where you can sign up for updates.
Take the quiz to help determine your Beneficial Ownership Information filing status.