31 oktober 2024 George Casey  -  Brad Caswell  -  Zila Acosta Grimes  -  Nina Zegarra-Schmidt  -  Heiko Schiwek  -  Gregory Gewirtz  -  Clara Pang  -  Pierre-Emmanuel Perais Capital Markets - Debt - Capital Markets - Equity - Corporate Governance - Financial Regulation - Investment Funds

U.S. M&A Newsletter — October 31, 2024

CTA in 2025: New Year, Expedited Reporting Obligations and Other Updates

As of January 1, 2024, the Corporate Transparency Act (“CTA”) and its implementing regulations enacted by the Financial Crimes Enforcement Network (“FinCEN”) began its first year of implementation. The CTA’s beneficial ownership reporting obligations apply to “reporting companies,” which are U.S. corporations, limited liability companies (LLCs), any entities that were created by the filing of a document with a secretary of state, or foreign entities registered to do business in the United States through the same means. Unless one of the 23 available exemptions apply, a reporting company is required to report to FinCEN information about: (i) the company, (ii) its beneficial owners and, for entities created after January 1, 2024, (iii) its “company applicants.”

To ease implementation, FinCEN granted exemptive relief for new reporting companies formed after January 1, 2024, allowing reporting companies 90 days to file their beneficial ownership information reports (“BOIR”). This relief will expire on January 1, 2025. After this date, any new entities formed will only have a 30-day window from formation or registration to file their BOIR, unless FinCEN decides to extend the reporting deadline. As a reminder, existing reporting companies that were established before January 1, 2024, are required to submit their beneficial ownership reports by the end of the year on December 31, 2024.

Below, we have provided some key updates as 2025 approaches. For more information about the CTA, please refer to our prior article, Preparing to Comply with the Corporate Transparency Act.

Key Updates
  • In response to the CTA, New York passed the LLC Transparency Act (“LLCTA”) on March 1, 2024. Starting January 1, 2026, LLCs formed or registered in New York will be required to submit beneficial ownership reports to New York. Although the LLCTA incorporates the majority of the CTA’s provisions, the LLTCA is not self-executing. Any LLC relying on one of the 23 exemptions must electronically file an attestation of exemption, specifying the claimed exemption along with the supporting facts.
  • A lawsuit filed by the National Small Business Association (“NSBA”) and its members was successful in the Northern District of Alabama District Court, with a ruling that the CTA is unconstitutional. While the ruling’s applicability is limited to enforcing the CTA against the plaintiffs in the case, it may set a precedent and encourage similar lawsuits in other jurisdictions across the United States.
  • Unresolved questions surrounding the implementation of the CTA persist, contributing to uncertainty and confusion among organizations striving to comply with its provisions. For instance, one pressing issue revolves around what it means to be a “controlled” subsidiary for purposes of the CTA’s subsidiary exemption. Specifically, the subsidiary exemption applies only to entities whose ownership interests are controlled or wholly owned by certain exempt entities. Although the concept of “wholly owned” is relatively straightforward, the concept of “control” for determining whether an entity would meet the subsidiary exemption is not expressly defined and requires a facts and circumstances analysis.

Given the ongoing uncertainties and unresolved questions surrounding the implementation of the CTA, clients must remain vigilant, particularly as there are still many developments yet to unfold. By staying informed, seeking expert guidance, and actively addressing potential compliance gaps, organizations can effectively navigate the CTA. Members of our team are available to assist organizations in navigating the CTA’s evolving regulatory landscape to remain compliant.

In Other News

Read past issues of our U.S. M&A Newsletter here. We thought you might also find the following articles featuring our Linklaters colleagues useful.