UPDATE: Corporate Transparency Act Is Back On - Are You Confused Yet?

California has more than 4 million small businesses, making up 99.8% of all businesses in the the state.

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction that prohibits the enforcement of the Corporate Transparency Act (CTA). For those of you know still haven't heard of it, the CTA was enacted on January 1, 2021, and required businesses to report beneficial ownership information to the Financial Crimes Enforcement Network, or FinCEN, a bureau of the U.S. Department of the Treasury, in an effort aimed at promoting national security by detecting money laundering and fighting the financing of terrorism. It is estimated that as many as three-quarters of the 32 million private companies that are required to file ownership information by the end of 2024, have yet to do so.

WHAT DOES A PRELIMINARY INJUNCTION MEAN FOR YOUR CALIFORNIA BUSINESS?

For now, the January 1, 2025, deadline to report is temporarily halted. But, business owners should know that on December 5, 2024, the federal government appealed the injunction. What this means is that no one knows how long the temporary injunction will remain in effect and when a possible new deadline would be imposed if the injunction is lifted. That may leave many folks scrambling to get those reports filed or face the stiff fines. We also don't know if preliminary injunction will lead to a permanent injunction.

CTA Reporting Deadlines

Prior to the court's order last week, business entities that were formed on or after January 1, 2024, were required to file a beneficial ownership information report (BOIR) within 90 days of formation while existing businesses were given until January 1, 2025 to comply.

What Businesses are Affected By the CTA

The short of it is if you own 25% interest in a business, such as an LLC or corporation, you are required to file a report. There are some exceptions – 23 of them – but many if not most of these exceptions won’t apply to small to midsize business owners who are registered with the California Secretary of State. What’s more, if you’re married and live in a community property state such as California, and you have a 25% interest in a business required to report, your spouse is also required to report. Failure to report could lead to some pretty severe fines, including both civil penalties of $591 per day for each day the violation continues; and criminal penalties of up to $10,000 and/or up to two years in prison. This could mean that even your honest mistakes could result in costly civil penalties that will negatively impact you and your business.

For those business entities that have already filed a BOIR, rest assured for now there isn’t any other action to take. If there are changes to ownership information that would otherwise require the filing of an updated or corrected report, there won’t be enforcement while the injunction remains. For those who haven’t completed reporting, you can get your reports ready and either wait to file pending the outcome of the court’s decision, or get your filing done, just in case.

Visit us at www.relatelaw.com for updates to this post as the story continues to unfold.

UPDATE: On January 23, 2025, the U.S. Supreme Court lifted a nationwide injunction, allowing the enforcement of the Corporate Transparency Act (CTA) to proceed. The CTA mandates that corporate entities disclose their real beneficial owners to the U.S. Treasury Department, aiming to combat financial crimes such as money laundering and tax fraud. This decision enables the government to enforce the CTA’s reporting requirements, which had been previously challenged in lower courts.