Beneficial Ownership Information (BOI) Update: January 2, 2025

January 2nd, 2025
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Amid ongoing litigation regarding beneficial ownership reporting, the Financial Crimes Enforcement Network (FinCEN) quietly updated their website to state the following: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

Understanding the Corporate Transparency Act

The Corporate Transparency Act (CTA) is a federal law that mandates certain businesses to file reports that provide information about their beneficial owners. It requires businesses to be more transparent and seeks to combat money laundering, terrorist financing, drug trafficking, and tax fraud. The CTA makes it more difficult for businesses to hide ownership and prevents bad actors from exploiting loopholes in order to gain an unfair advantage.

Specifically, under the CTA, reporting companies must provide certain information concerning the beneficial owners of the company. The information that must be submitted includes the beneficial owner’s:

  • Name
  • Date of birth
  • Address
  • Identifying number from a driver’s license, passport, or other form of government ID

The company’s name and address must also be provided. However, due to ongoing litigation, these reporting requirements have been suspended.

Who is a Beneficial Owner?

Pursuant to the CTA, an individual will qualify as a beneficial owner of a company if they have a significant stake in it. They must either exercise substantial control — or own or control 25% or more of the reporting company’s ownership interests.

What is the Litigation Concerning Beneficial Ownership Information Reporting?

There has been a considerable amount of litigation surrounding beneficial ownership information reporting, challenging the constitutionality of it. Here is a summary of the litigation, according to the FinCEN website:

On December 3, 2024, the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an order which granted a nationwide preliminary injunction regarding filing beneficial ownership information. According to an order issued in the case, Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), reporting companies are not currently required to file beneficial ownership information with FinCEN — they are also not subject to liability for failing to do so while the order remains in effect. Regardless of the ruling, reporting companies can continue to submit beneficial ownership information reports voluntarily.

Texas Top Cop Shop is only one case among several that are currently pending before courts nationwide raising a challenge to the Corporate Transparency Act (CTA). Notably, several district courts have denied requests to enjoin the CTA, and have ruled in favor of the Department of the Treasury. The government continues to believe that the CTA is constitutional, as held by the U.S. District Courts for the Eastern District of Virginia and the District of Oregon. Accordingly, the Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024. It also separately sought a stay of the above mentioned injunction — pending the outcome of that appeal.

On December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit granted a stay of the preliminary injunction entered in Texas Top Cop Shop, pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order. FinCEN notified the public of this ruling and recognized that reporting companies may have needed additional time to be in compliance with the beneficial ownership reporting requirements. At that time, FinCEN extended the reporting deadlines.

On December 26, 2024, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order that vacated the Court’s December 23, 2024 order granting a stay of the preliminary injunction. As of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.

Contact an Experienced Michigan Business Law Attorney

Complying with the Corporate Transparency Act can be complex and it’s essential to have a skillful business law attorney who can best advise you regarding your obligations and reporting requirements. With offices in East Lansing, Mt. Pleasant, Grand Rapids, and Detroit, The Gallagher Law Firm is committed to providing our corporate clients with professional and reliable services for all their legal needs. To learn more about how we can assist you with your business matters, contact us online or call (517) 853-1500.

Categories: Business Law