THE CORPORATE TRANSPARENCY ACT APPLIES TO LIMITED PARTNERSHIPS, LLCs AND OTHER ENTITIES AND REQUIRES DISCLOSURE TO THE U.S. GOVERNMENT - - BLOCKED BY A FEDERAL COURT - - FOR NOW.

The rationale behind the new federal law is to compel transparency of beneficial owners of legal entities, in order to uncover money laundering and other criminal activity.

What do the new rules require?

Any entity formed after January 1, 2024 by the filing of a document with a government entity (which would include a corporation, a limited liability company and a limited partnership), must disclose to FinCEN (the Financial Crimes Enforcement Network) the identity of all owners of 25% or more, and anyone else in substantial control of the entity, within 90 days.  Disclosure is via a Beneficial Ownership Information (BOI) report.

Entities already in existence on January 1, 2024 were to have complied by January 1, 2025.  In early December, a federal court in Texas issued a nationwide injunction temporarily halting enforcement of the BOI reporting rules and questioning the constitutionality of the Corporate Transparency Act.  The decision is not final, and the U.S. Department of Justice has already appealed.

FinCEN has acknowledged the court’s ruling and will not impose penalties for non-filing, as long as the ruling is in effect.

If this injunction is overturned, there may be a last-minute rush to meet compliance requirements.

Some practitioners are not filing the BOI report, while others are proceeding with the filings.

Filing now can help ensure compliance if the BOI reporting rules are reinstated and avoid last-minute filing or penalties for filing late. At a minimum, clients should have all BOI information at the ready, in the event the filing requirement is reinstated.

A beneficial owner of an entity is an individual who, directly or indirectly, exercises substantial control over an entity, or owns or controls 25% or more of the entity (through profits, capital, options or other equity-like structures). The “substantial control” test requires reporting for senior officers such as CEOs and CFOs, even if they do not own any equity.

Note also that the New York LLC Transparency Act requires similar disclosure for LLCs in New York. This act was passed by the NYS legislature in 2023 and is scheduled to come into effect January 1, 2026.

Contact us for further assistance with new laws that affect your LLCs, LPs and other entities.

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