Corporate Transparency Act

The Corporate Transparency Act (CTA) was passed by the U.S. Congress on January 1, 2021, as part of the Anti-Money Laundering Act of 2020. The stated purpose of the CTA is to improve corporate transparency and curb illicit activities and financial crimes, including the use of shell and front companies to obfuscate ownership and launder money. Specifically, per its terms, the CTA exists “to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities by making it more difficult for bad actors to conceal their financial activities through entities with opaque ownership structures” while also “providing essential information to law enforcement and other agencies to help prevent corrupt actions, terrorists, and proliferators from hiding money and property in the United States.”

The CTA represents a major change for businesses in the United States by requiring the disclosure of beneficial owners of all domestic and U.S.-registered foreign reporting companies, unless an exemption applies. The CTA and its implementing reporting and other rules apply to: (i) “domestic reporting companies,” such as corporations, limited liability companies (LLCs), and others that are created by filing documents with a secretary of state or similar office under the laws of a state or Indian tribe; and (ii) “foreign reporting companies” that are formed under the laws of a foreign country and are registered to do business in the U.S. by the filing of a document with a secretary of state or similar office under the laws of a state or Indian tribe, subject in each case to any exemptions under the CTA and the CTA Rules.

For an overview of the CTA, including details on which U.S. and foreign companies are subject to the CTA reporting requirements, exemptions from the requirements, beneficial ownership and other information required to be reported, filing deadlines, and penalties for non-compliance, please see “The Corporate Transparency Act (CTA): An Overview” under the Resources tab.

Since its passage, multiple companies and groups have challenged whether the CTA and the CTA Rules are enforceable.

Recent Developments

• On December 3, 2024, a nationwide preliminary injunction was issued in Texas Top Cop Shop, Inc. v. Garland, Case No. 4:24-cv-00478-ALM, United States District Court for the Eastern District of Texas (as later amended by the district court on December 5, 2024, the “Amended Texas Opinion”). The Amended Texas Opinion enjoined the CTA and paused enforcement activities and related reporting deadlines on a nationwide basis. This decision is on appeal to the United States Court of Appeals for the Fifth Circuit.
• On December 23, 2024, the United States Court of Appeals for the Fifth Circuit granted a stay of the district court’s injunction. On the same day, FinCEN published an alert entitled “Updates to Beneficial Ownership Information Reporting Deadlines – Beneficial Ownership Information Reporting Requirements Now in Effect, with Deadline Extensions,” extending certain previously applicable reporting deadlines. The December 23^rdalert, with the FinCEN extended reporting dates, can be found here.
• On December 26, 2024, the United States Court of Appeals for the Fifth Circuit reinstated the nationwide injunction imposed by the Amended Texas Opinion, staying enforcement of the Corporate Transparency Act (CTA) and its reporting rules. The Fifth Circuit is reviewing the appeal on an expedited basis. The injunction remains in effect pending the Fifth Circuit’s consideration of the appeal.

Other cases also remain pending or may yet be filed in various courts around the country. Whether the Amended Texas Opinion or any other CTA case will ultimately find that the CTA and the Reporting Rule are not enforceable is uncertain.

Miller Canfield attorneys can provide compliance counseling and legal advice to clients impacted by the CTA.