Adhering to the Corporate Transparency Act, New York LLC Transparency Act And Updates

Enacted by Congress in 2021, the Corporate Transparency Act (CTA) aimed to prevent money laundering, terrorist funding, and tax evasion. It required certain businesses to report information on their beneficial owners, officers, and other significant control individuals to the Financial Crimes Enforcement Network (FinCEN) within the Treasury. The requirement, which started being enforced in January, carries stern penalties for non-compliance, including hefty fines and prison terms.

To comply with FinCEN’s requirements, the reporting company must provide beneficial ownership information (BOI), which encompasses data on three key areas. These include details about the entity itself, the individual responsible for its creation, and the entity’s actual “Beneficial Owners”.

In March 2024, an Alabama district court ruled in National Small Business United v. Yellen that Congress does not have the power to mandate that companies reveal the identities of their beneficial owners to FinCEN. However, the decision has limited coverage, specifically affecting only the parties involved in the lawsuit. Consequently, all other companies that fall under the CTA must submit their beneficial ownership information to FinCEN within the designated timeframes. This includes a 90-day reporting period for businesses established or registered to operate in the year 2024 and a 30-day period for those established or registered after this time. This requirement was reiterated by FinCEN through a notification on its official website following the court’s decision.

So, the takeaway here is that while the plaintiffs do not need to comply with the CTA’s requirements for now, there is no indication that FinCEN intends to let any other regulated party avoid compliance. Accordingly, companies established or registered for business before January 1, 2024, are required to submit their initial filings by January 1, 2025. Given that less than five months remain to navigate the intricate legal matters related to adhering to and reporting under the CTA and compiling necessary information on beneficial ownership, these preexisting organizations should be preparing to meet this filing deadline.

In March 2024, New York enacted its counterpart to the Corporate Transparency Act, known as the New York LLC Transparency Act (NY LLCTA), which is set to come into force on January 1, 2026. This regulation applies to all limited liability companies either established or qualified to operate within the state. The NY LLCTA mandates these companies to submit a report to the New York Department of State, detailing their beneficial ownership. This filing requirement is immediate for LLCs established post-law implementation. However, LLCs that were either formed or permitted to conduct business in New York before the law’s introduction have a grace period until 2027 to comply. As these legislative changes unfold, it will be essential to stay informed about the specific details of beneficial ownership reporting obligations in the approaching years.