We previously shared guidance for venture-backed companies in navigating the requirements of the Corporate Transparency Act (“CTA”). Several important updates have recently occurred and this article provides an overview of key consideration for companies to navigate CTA compliance.
What is the CTA:
- Adopted as part of the Anti-Money Laundering Act of 2020, the CTA requires most privately owned companies to submit beneficial ownership information (“BOI”) reports to the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury.
What happened:
- On December 3, 2024, a federal district court judge issued a preliminary injunction enjoining the enforcement of the Corporate Transparency Act. The injunction explicitly puts the CTA’s January 1, 2025, reporting deadline for reporting companies on hold. Unlike other prior challenges to the CTA, the injunction applies nationally, not just to the plaintiffs in the case.
- On December 5, 2024, the Department of Justice filed a Notice of Appeal potentially aiming to narrow or overturn the injunction on behalf of the Department of the Treasury.
- On December 7, 2024, FinCEN clarified that, in light of the court order, reporting companies are not currently required to file beneficial ownership information and will not face liability for non-compliance while the injunction remains in effect.
- On December 23, the preliminary injunction was stayed on appeal, reinstating the CTA filing requirements. Reporting companies are now required to file BOI reports with FinCEN in accordance with the CTA.
What this Means FOR YOUR COMPANY:
The original BOI filing deadline for many reporting companies was January 1, 2025. In light of the prior injunction, the Department of Treasury has extended this deadline as follows:
- Reporting companies that were created or registered prior to January 1, 2024, have until January 13, 2025, to file their initial BOI report with FinCEN.
- Reporting companies created or registered in the United States on or after December 3, 2024, and on or before December 23, 2024, have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
- There is no extension for reporting companies that are created or registered in the United States on or after January 1, 2025. Such companies have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
CLOSING THOUGHTS
Failure to timely report or update BOI reports to FinCEN, or willfully providing false beneficial ownership information, is subject to civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties, including imprisonment for up to two years and/or a fine of up to $10,000. Senior startup officers who fail to file required BOI reports may be held accountable for that failure. Further, a company would need to disclose any CTA compliance infractions to potential investors or acquirers, which could jeopardize a company’s ability to secure funding or be acquired.
Further, the special economic and governance rights negotiated in venture financing can create complex analytical and reporting hurdles for venture investors, startups, and other venture-backed companies. In addition, venture-backed companies must navigate data protection and privacy concerns in collecting and storing the information required for CTA compliance. GwC is available to assist our clients in preparing for and filing BOI reports and navigating related compliance concerns.
This article is for educational purposes and does not constitute legal advice. Please contact us for more information or assistance.
