The Corporate Transparency Act (CTA) remains the law of the land, at least for now, and companies should prepare to comply. Recently, a federal district court in Alabama found the CTA to be unconstitutional. In the wake of the district court’s ruling, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a statement confirming that it will not enforce the CTA reporting requirements at this time against the specific plaintiffs in the case. See Warner’s eAlert on the court ruling here.

The federal government has already filed an appeal of the Alabama decision, which will proceed in the Eleventh Circuit Court of Appeals. Warner’s CTA task force is monitoring this case and expects to see additional challenges to the CTA filed in other jurisdictions. Currently, however, CTA reporting obligations remain in effect for all entities considered to be “reporting companies,” with the exception of the specific plaintiffs in the Alabama litigation (an individual business owner, the National Small Business Association and individuals or entities who were members of the National Small Business Association as of March 1, 2024).

That means any entity formed during 2024 that is considered a “reporting company” must file its first beneficial ownership information (BOI) report on the FinCEN website within 90 days after formation. As a result, entities formed in early January will need to file BOI reports in early April of this year on the FinCEN reporting portal. We do not expect that the CTA will be definitively overturned by that time, so newly formed entities should expect to submit a report and prepare accordingly.

Is My Entity a Reporting Company?

A “reporting company” is any entity formed by filing with a secretary of state or similar office, unless the entity falls within one of several specific exemptions from this FinCEN reporting requirement (such as large operating companies with more than 20 full time employees and over $5 million in revenues reported on their prior year tax return, certain entities subject to substantial government regulation such as banks and registered broker-dealers or investment advisers, some tax-exempt entities and inactive entities). Examples of entities that are likely to be considered reporting companies and currently required to file a report to FinCEN could include:

• Family offices.
• Family LPs, LLPs or LLCs.
• LLCs created to hold real estate, art or an investment portfolio.
• LLCs that hold titles to yachts or airplanes.
• S and C corporations and LLCs that hold small and medium-sized family businesses.
• Holding companies that own the equity of one or more large operating businesses.
• Unregulated private trust companies.

Who is a “Beneficial Owner” of My Entity?

Reports filed by a “reporting company” must provide information about the beneficial owners of the entity. A "beneficial owner" is any individual who directly or indirectly:

• Exercises substantial control over the reporting company (for example, through service as a senior executive such as CEO, CFO, COO or general counsel, or through other authority to make substantial decisions on behalf of the entity, even if the individual does not have any equity interest in the company).
• Owns or controls 25% or more of the ownership interests of the reporting company.
• Owns or controls a majority of the voting equity in the reporting company.

Keep in mind “substantial control” and “ownership interests” are broad terms encompassing a wide variety of individuals, not just those with equity or vested equity in the entity. See our previous blog post on the CTA here for more information on determining beneficial owners.

What If My Entity was Formed Before 2024?

Entities that were formed prior to January 1, 2024, have a deadline of December 31, 2024, to file their BOI reports. These entities should expect to report but may wish to wait to monitor further developments in CTA litigation. Keep in mind that entities with complex ownership structures and/or individuals holding interests in a large number of CTA reporting companies may need to invest significant time and resources in understanding their CTA reporting obligations and gathering the required information. Before investing this time, clients in this position may wish to take a “wait and see” approach for a few months as CTA litigation continues.

What is a FinCEN Identifier?

Reporting companies and beneficial owners whose information will need to be reported and updated in relation to multiple entities can simplify that task some by requesting a FinCEN identifier on the FinCEN website here. This identifier then can be used in BOI reports in place of the list of information that must be reported about an entity or an individual.