On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act’s (CTA) beneficial ownership reporting requirements were unconstitutional, citing Congressional overreach. The court determined that the plaintiffs in the case, Isaac Wilkes and National Small Business United (NSBU) which represents 65,000 members including Wilkes, will not be subject to these requirements. If you would like to learn more about the Federal Court’s decision on the Corporate Transparency Act, click here.

The introduction of the Corporate Transparency Act (CTA) marks a noteworthy shift in the regulatory landscape for small, privately held businesses, including family offices. The CTA, enforced by the Financial Crimes Enforcement Network (FinCEN), mandates the reporting of beneficial owners and applicants, aiming to combat financial crime.  

The impact of the CTA on family offices hinges on their unique structures and objectives. Determining whether a family office meets the requirements of a reporting company will entail a detailed analysis of the structure.   

Even if the family office itself does not meet reporting requirements, individual entities within its structure may still be subject to filing. Therefore, it is important to independently assess each entity, such as limited liability companies or limited partners, for reporting requirements.    

With the implementation of the CTA reporting requirements, now is the perfect time to evaluate and potentially streamline entity structures. Terminating unused entities while reviewing and revising reporting company officers can help reduce compliance burdens. Additionally, proactively managing disclosures through FinCEN identifiers can further simplify the reporting process, especially when multiple entities fall under the same individual beneficial owner or company.

Family office structures are often set up not only to provide management of various entities, add asset protection, and efficiencies, but frequently provide an additional layer of privacy. Though the new reporting requires the disclosure of some seemingly invasive personal details, company financials, and other business information are not reportable details. Further, the information reported to FinCEN is not available to the public. 

Depending on when a business was established, the CTA has the following reporting deadlines:

• Companies established before January 1, 2024, must file by January 1, 2025  
• Companies established after January 1, 2024, have a 90-day filing window  

For reporting, the following information must be provided:   

• Company Details: This includes the company’s legal name, any doing business as (DBA) names, physical address, jurisdiction information, and a Tax Identification Number (TIN). 
• Beneficial Owner Information: For each beneficial owner, details including full legal name, date of birth, residential address, and a unique identifying number from an official document such as a passport or driver’s license must be provided. Moreover, submitting an image of the identifying document is necessary.  
• Company Applicant Details: Information about the company applicant, including name, date of birth, business address, and unique identifying number, is also required.   

Initial and ongoing compliance is essential; updated reports will be needed in the case of changes in beneficial ownership or reportable information within 30 days of the change. Examples include:  

• Gifting an interest in a company resulting in an increase or decrease in ownership  
• Change in address for a beneficial owner  
• Change to the company now meeting requirements for an exemption  

Failure to comply can result in steep penalties, including fines of $500 per day and potential imprisonment for willful non-compliance or false information.   

The changes in regulation that the CTA brings for family offices require a thorough assessment and compliance measures. As entities navigate the reporting requirements and deadlines, it’s essential to pay careful attention to detail, and proactive management of disclosure. By staying informed and taking decisive action, family offices can maintain compliance in an increasingly transparent financial environment.

Due to the nature of the reporting requirements, we recommend seeking legal counsel to determine which, if any, entities are obligated to file and which individuals must be reported as beneficial owners of those reporting companies.