Constitutionality of FinCEN’s Beneficial Ownership Report Under Scrutiny

On March 1, 2024, the U.S. District Court for the Northern District of Alabama declared the Corporate Transparency Act (CTA) unconstitutional. Effective January 1, 2024, under the CTA, reporting companies are required to submit a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN). These reports disclose detailed information about ‘beneficial owners’ of an entity, encompassing those who directly or indirectly own 25% or more of the entity’s ownership interests, as well as key decision makers with substantial control over the reporting company, such as C-suite executives and board members.

The resolution of this constitutional challenge may take some time. Until further information is available, businesses are advised to adhere to the new reporting requirements.

As a reminder, entities established before January 1, 2024, are not obligated to submit the initial BOI report until January 1, 2025. Such entities should delay filing until the end of 2024, to allow for any potential changes to the filing requirements.

Entities established on or after January 1, 2024, must file the report within 90 days. These entities should continue compliance unless there are changes to the requirements as outlined by FinCEN.

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While the courts assess the constitutionality of the CTA, New York’s Governor signed into law the LLC Transparency Act (LLCTA), effective December 21, 2024. This Act imposes beneficial ownership reporting requirements for limited liability companies organized and registered to do business in New York, similar to the requirements imposed by CTA.

New York is the first and currently the only state to implement transparency-style disclosure reporting requirements. We will continue to provide updates on this matter as they become available.

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