By: Katelyn J. Dougherty, Esq.
The landscape surrounding the Corporate Transparency Act (CTA) continues to shift, impacting businesses nationwide. Recent developments, particularly the ruling in NSBA v. Yellen, have stirred debates and necessitated a closer look at compliance strategies. Let’s delve into what these updates mean for your company.
On March 1, 2024, the U.S. District Court for the Northern District of Alabama delivered a pivotal verdict, deeming the CTA unconstitutional in NSBA v. Yellen. This decision, prompted by a suit filed by the National Small Business Association (NSBA), challenges the Act’s legal footing, citing concerns regarding Congress’ enumerated powers.
The ruling effectively halts the enforcement of the CTA against NSBA and its members who joined before March 1, 2024, introducing uncertainty regarding the timeline for reporting beneficial ownership information. However, it’s essential to recognize that the impact extends beyond NSBA, potentially affecting the broader landscape of corporate transparency regulations.
In response to the court’s decision, the Financial Crimes Enforcement Network (FinCEN), which administers the CTA, issued a notice on March 4, 2024, clarifying the limited scope of the ruling.
As of this blog, there is no national injunction against the CTA, and it remains fully operational. Consequently, all non-exempt companies and affiliated individuals are obligated to uphold compliance measures without interruption.
Understanding the CTA’s parameters is vital for businesses falling under its purview. Reporting obligations encompass various entities, including corporations, limited liability companies (LLCs), partnerships, non-profits, and foreign entities operating within the U.S. Identifying beneficial owners requires meticulous scrutiny and adherence to regulatory guidelines.
As companies navigate the intricacies of compliance, seeking legal counsel becomes paramount to mitigate risks associated with non-compliance. The repercussions for willful violations of the CTA underscore the importance of proactive measures and adherence to reporting deadlines.
The implications of the court’s ruling remain subject to interpretation and potential legal proceedings. While uncertainties loom, businesses must remain vigilant and prepared to adapt to evolving regulatory landscapes.
For entities established on or after January 1, 2024, the imperative to initiate preparatory measures for reporting is clear, necessitating a thorough evaluation of beneficial ownership structures and procedural adjustments. Meanwhile, existing entities created before January 1, 2024, may be advised to “wait and see,” monitoring the developments closely and awaiting further guidance on compliance obligations, as they have until the end of 2024, to file the report.
Leveraging available resources and staying abreast of regulatory updates are essential to navigating the complexities of beneficial ownership reporting under the CTA. FinCEN’s Frequently Asked Questions document is a valuable reference, offering insights into compliance requirements and best practices.
FinCEN’s Small Entity Compliance Guide provides a wealth of insights into ascertaining an individual’s qualification as a beneficial owner. Delve into Chapter 2, titled “Who is a beneficial owner of my company?”, where detailed sections address substantial control and ownership interest separately.
Remember, unless exempt, your next step is to identify your company’s beneficial owners.
A beneficial owner is any individual who directly or indirectly exercises substantial control over a reporting company OR owns or controls at least 25 percent of the ownership interests of a reporting company.
Have more than one company? Be prepared to file for each one!
Per FinCEN: “A reporting company can have multiple beneficial owners. For example, a reporting company could have one beneficial owner who exercises substantial control over the reporting company and a few other beneficial owners who own or control at least 25 percent of the ownership interests of the reporting company. A reporting company could have one beneficial owner who both exercises substantial control and owns or controls at least 25 percent of the ownership interests of the reporting company. There is no maximum number of beneficial owners who must be reported.”
Proactive engagement and informed decision-making are paramount as the regulatory landscape continues to evolve. Don’t hesitate to contact our team for tailored guidance and support on CTA compliance so we may navigate these challenges and ensure your company remains compliant and resilient in an ever-changing regulatory environment.
If you have an entity with an effective date of January 1, 2024, or after, contact our team to ensure your filing is done by the current 90-day deadline.
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Don’t have a business attorney? Get in touch with our team by emailing Info@harbourbusinesslaw.com.
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This Blog was written by Founding Attorney, Katelyn Dougherty.
DISCLAIMER: This blog is for educational purposes only and does not offer nor substitute legal advice. This blog does not establish an attorney-client relationship and is not for advertising or solicitation purposes. Any of the content contained herein shall not be used to make any decision without first consulting an attorney. The hiring of an attorney is an important decision not to be based on advertisements or blogs. Harbour Business Law expressly disclaims any and all liability in regard to any actions, or lack thereof, based on any contents of this blog.
