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Placeholder image of the US Department of the Treasure building, relative to the Corporate Transparency Act

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a U.S. federal law that went into effect on January 1, 2024. Businesses that existed prior to January 1, 2024 have a year to comply. Companies that form after the start of this year have only 90 days in which to file.

This law created a new beneficial ownership information reporting requirement as part of efforts to make it harder for bad actors to hide. There are exceptions only for large institutions such as utility and insurance companies.

U.S. businesses must now report to FinCen the social security number, driver’s license, passport number and home address of all individuals with a controlling interest in that business on an annual basis. The penalties associated with noncompliance are thousands of dollars in fines and up to two years in federal prison.

FinCen Beneficial Ownership Info

Virtual SBAM Member Briefing

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Key Provisions of the Corporate Transparency Act

Beneficial Ownership Reporting

Companies are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who directly or indirectly control a significant ownership interest in the company.

Definition of Beneficial Owner

The CTA defines a beneficial owner as an individual who, directly or indirectly, exercises substantial control over a company or owns or controls at least 25% of the ownership interests of the company.

Reporting Requirements

Companies, including limited liability companies (LLCs), corporations, and similar entities, are obligated to file reports with FinCEN containing information about their beneficial owners. This information is not publicly disclosed but is made available to law enforcement and certain government agencies for investigative purposes.

Corporate Transparency Act Timeline

January 1, 2024

The Corporate Transparency Act becomes law.

March 1, 2024

On March 1, 2024, the U.S. District Court for the Northern District of Alabama held that the Corporate Transparency Act is unconstitutional. Specifically, the court found that enactment of the CTA could not be justified as an exercise of Congress’ enumerated powers set forth in Article I of the Constitution. As a result, the court held that Congress lacked authority to enact the CTA and that the CTA cannot be enforced against the plaintiffs in that litigation.

March 4, 2024

FinCEN issued a statement confirming that it will not enforce the CTA against Winkles, the NSBA or any individual or entity that was a dues-paying member of the NSBA as of March 1, 2024. While this ruling is significant, it does not provide a justification for any other individuals or companies to stop complying with the CTA.

March 26, 2024

The Small Business Association of Michigan filed a lawsuit against the Corporate Transparency Act in the Michigan 4th District Court of Appeals on the grounds that it is unconstitutional. Due to the nature of the ruling in Alabama, we are hopeful that an injunction will be ordered.

SBAM’s Legal Action

The Small Business Association of Michigan is taking legal action against the invasive and unconstitutional Corporate Transparency Act.

This is on the heels of a March 1, 2024 ruling by the U.S. District Court for the Northern District of Alabama that held the Corporate Transparency Act is unconstitutional. Subsequently, decisions were issued that the CTA cannot be enforced against the specific plaintiffs (National Small Business Association and its dues-paying members). All other businesses subject to the CTA must still comply.

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Additional Resources

On February 7, 2024, Jonathan Wilson presented a webinar: “What small business owners need to know about the Corporate Transparency Act”

Webinar Recording

In a January 2024 episode of SBAM’s Small Business Briefing, attorney Corinne Sprague of Warner Norcross + Judd provided detailed insight into the Corporate Transparency Act and what small business owners need to do to be compliant.

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