Guidance for Venture-Backed Companies
In our previous guidance, we outlined how venture-backed companies can navigate the requirements of the Corporate Transparency Act (“CTA”). Since then, several significant developments have occurred. This article highlights the latest updates and offers key insights to help companies ensure smooth compliance with the CTA.
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.
What this Means FOR YOUR COMPANY:
- While the nationwide injunction remains in place, companies are not required to submit CTA reports. However, FinCEN will allow reporting companies to submit BOI reports voluntarily.
- The outcome of FinCEN’s appeal is unknown but could result in the injunction being overturned or narrowed, thus reinstating the BOI report filing requirements.
- 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. Thus, we recommend that reporting companies gather all information required to file their BOI reports to be prepared to make required fillings quickly if the injunction is overturned or narrowed.
GwC will continue to monitor the developments and advise you of any changing obligations. This article is for educational purposes and does not constitute legal advice. However, GwC is happy to assist our clients in preparing for and filing BOI reports. Please contact us for more information or assistance.
