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 considerations 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 (“reporting companies”) to file beneficial ownership information (“BOI”) reports with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury.
What happened:
- In 2024, several federal district courts issued a preliminary injunction enjoining the enforcement of the CTA. As a result, reporting companies were not required to file beneficial ownership information with FinCEN as required by the CTA.
- On February 18, 2025, the preliminary injunction issued in the Smith case was stayed on appeal, reinstating the CTA filing requirements. With no active injunctions, 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:
- Most reporting companies now have until March 21, 2025, to file their initial BOI report with FinCEN.
- Reporting companies previously given a reporting deadline later than the March 21, 2025 deadline, must file their initial BOI report by that later deadline. For example, if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it should follow the April deadline, not the March deadline.
- FinCEN announced it will assess its options to modify deadlines further while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN is evaluating potential exemptions for “low-risk entities” but has not provided details.
- Although the House passed a bipartisan bill (HR 736) to extend the CTA filing deadline to January 1, 2026, the Senate has yet to act. There is no guarantee that this extension will become law.
What this Means FOR YOUR COMPANY:
Failure to timely report or update BOI reports to FinCEN, or willfully providing false beneficial ownership information can result in:
- Civil penalties: Up to $500 per day for noncompliance.
- Criminal penalties: Up to two years in prison and/or fines up to $10,000. Senior startup officers who fail to file required BOI reports may be held accountable for that failure
- Startup risks: Noncompliance may need to be disclosed to investors or acquirers, which could jeopardize a company’s ability to secure funding or be acquired.
CLOSING THOUGHTS:
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 when collecting and storing the information required for CTA compliance. GwC is available to assist our clients in preparing for and filing BOI reports, as well as navigating related compliance concerns.
This article is for educational purposes and does not constitute legal advice. Please contact us for more information or assistance.
