Beneficial Ownership Interest and the Corporate Transparency Act

UPDATE: Treasury announces March 2, 2025 it will not enforce the Corporate Transparency act

https://fincen.gov/boi

The law requiring the registration of beneficial ownership is known as the Corporate Transparency Act (CTA). This act was passed by Congress in 2021 as part of a broader effort to combat money laundering, terrorism financing, and other illicit activities. The CTA mandates that certain business entities report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

Requirements Of The Corporate Transparency Act

Under the CTA, the following key requirements must be met:

1. Who Must Report:

   • Reporting Companies: This includes corporations, limited liability companies (LLCs), and other similar entities created or registered to do business in the United States.

   • Exemptions: Certain entities, such as large operating companies, regulated entities, and inactive entities, are exempt from reporting.

2. What Must Be Reported:

   • Beneficial Owners: Individuals who own or control at least 25% of the company or exercise substantial control over the company.

   • Information Required: The full legal name, date of birth, current residential or business address, and a unique identifying number from an acceptable identification document (e.g., passport, driver’s license) of each beneficial owner.

3. When to Report:

   • Existing Companies: Must report their beneficial ownership information by January 1, 2025.

   • New Companies: Must report within 30 days of formation.

   • Changes in Information: Any changes to the reported information must be updated within 30 days.

4. Where to Report:

   • www.fincen.gov.

Purpose of the Corporate Transparency Act

The primary goal of the CTA is to increase transparency in corporate structures and make it more difficult for bad actors to hide their identities behind shell companies. This helps law enforcement agencies detect and prevent financial crimes more effectively.

Enforcement suspended

On December 26, 2024, and despite a previous opinion reaching the opposite effect, the Court of Appeals for the Fifth Circuit issued an opinion effectively reinstating an injunction suspending the reporting requirements until further notice. This temporary decision stems from a challenge to the law on First Amendment grounds, and the enforcement of the law, if ever, will depend on the outcome of that appeal.

Put simply, at least as of December 30, 2024, business owners in Texas are not currently required to submit their beneficial ownership interest information--but that could change quickly. If you choose not to complete it until the appeal is completed, be sure to stay up to date on the outcome of the appeal. Penalties for failure to comply can exceed $500 per day.