8978.01 / What FinCEN reporting requirements apply to LLCs and other small business entities starting in 2024?

Editor’s Note: On March 1, 2024, the federal district court for the Northern District of Alabama ruled that the Corporate Transparency Act (CTA) that created the new FinCEN BOI reporting requirements was unconstitutional. The court granted an injunction on enforcement, but that injunction only applies to the plaintiffs (including members of the National Small Business Association (NSBA) and, presumably, reporting companies in the Northern District of Alabama¹. In December of 2024, a federal court in Texas² granted an injunction to prevent FinCEN from enforcing the BOI reporting requirements on a nationwide basis. On December 23, 2024, a panel of the Fifth Circuit Court of Appeals granted the DOJ’s motion to lift that injunction. However, just days later, a different panel of Fifth Circuit Appeals Court judges reversed that order. Currently, the injunction preventing enforcement of the BOI reporting obligation remains in place. The Department of Justice has filed an appeal and FinCEN is reviewing the order. Best practices do dictate that clients should be prepared to comply with the BOI reporting obligations if the injunction is lifted.

FinCEN has recently created new beneficial ownership reporting obligations that apply to all domestic reporting companies (including corporations, LLCs, limited partnerships and any entity formed by filing a document with a secretary of state in the U.S). The company's beneficial owners must be identified and reported to FinCEN in an effort to control money laundering and other criminal activity committed through shell companies and other opaque business structures. A "beneficial owner" is a natural person who either 1) exercises substantial control over the company or 2) owns or controls 25% or more of the ownership interests in the company (whether directly or indirectly).

When making the determination of whether an individual owns or controls 25% of the business, the individual's options, convertible instrument and other similar equity rights are treated as though they have been exercised.