The Corporate Transparency Act (CTA) introduces new compliance responsibilities that directly affect attorneys, especially those who assist in forming business entities. Understanding the CTA for law firms is essential as firms navigate reporting obligations, privacy risks, and client advisory roles under this evolving federal law.
Let us break down what the CTA is, what it means for law firms, and how to help clients stay compliant.
What is the Corporate Transparency Act?
The CTA, passed under the Anti-Money Laundering Act of 2020 and implemented by the Financial Crimes Enforcement Network (FinCEN), mandates that certain businesses submit beneficial ownership information—details on who ultimately owns or controls the entity—through a secure federal database. The information is not public, but federal and some authorized agencies can access it to investigate money laundering, terrorism financing, and tax evasion.
The act targets opaque ownership structures, such as shell companies, often used to hide illicit activity. Under the CTA, most small corporations, LLCs, and similar entities must file a report identifying each beneficial owner and “company applicant,” which can include attorneys or law firm staff who file formation documents on behalf of clients.
Why the CTA has raised concerns
Despite its anti-crime intent, the CTA has not gone unchallenged. Critics argue that it places a disproportionate burden on small businesses and law firms. The National Small Business Association (NSBA) filed a lawsuit challenging the law’s constitutionality, citing Fourth Amendment concerns over warrantless data collection. A federal district court agreed, temporarily blocking enforcement against NSBA members.
Another major concern is privacy. Law firm staff who act as company applicants must disclose personal identifying details such as their date of birth and government ID numbers to FinCEN. This requirement has stirred anxiety among legal professionals who fear a breach of attorney–client confidentiality.
Also read: Understanding Limits of Liability: Protecting Professionals from Financial Risk
Where the CTA stands now
Originally, businesses formed before January 1, 2024, had until January 1, 2025, to submit beneficial ownership information. But in March 2025, the Treasury announced a halt to enforcement for U.S. citizens and domestic entities—a major shift in the rule’s scope. Treasury now plans to limit CTA compliance to foreign-owned entities registered to do business in the U.S.
While enforcement may be paused, the law remains on the books. FinCEN is still revising deadlines, and Congress has yet to repeal or amend the statute. For now, domestic law firms should prepare as if compliance could still become mandatory.
The new responsibilities around the CTA for law firms
The CTA, for law firms, does more than ask attorneys to understand the rules—it may pull them into the reporting process themselves.
Lawyers as company applicants
If a lawyer, paralegal, or law firm staffer files to form a business entity, they may be labeled a company applicant. This means their personal information must be disclosed in the client’s report to FinCEN. Some law firms may prefer clients file their own formation documents to avoid this exposure.
Advising clients
Attorneys must now help clients determine if they are reporting companies and explain the necessary steps. This includes verifying whether the business qualifies for one of 23 exemptions, such as having more than 20 employees, $5 million in revenue, and a physical U.S. office.
Failure to advise clients properly could open firms up to legal malpractice claims, especially if clients are penalized.
Also read: What is Step Rate? Understand How Premiums Change Over Time
Penalties and legal risk
The CTA includes steep penalties for noncompliance: civil fines of up to $500 per day, criminal penalties of up to two years in prison, and $10,000 in fines for willfully providing false or incomplete information.
Law firms that handle corporate filings must tread carefully to avoid both liability as company applicants and potential lawsuits from poorly advised clients.
What comes next for the CTA for law firms
Though the Treasury’s recent guidance may delay enforcement, small law firms should not assume permanent exemption. Lawsuits continue, and enforcement rules may shift again. The best approach is to stay informed and proactively support clients.
For now, here is what every small law firm should do:
- Audit your role in business formations and identify when you or your staff may be applicants.
- Educate clients about their reporting duties and exemption eligibility.
- Monitor updates from FinCEN and legal industry groups, as deadlines and rules may still change.
- Protect your firm with documentation and clear client communication.
Also read: How Much Does Professional Liability Insurance Cost for Solo Attorneys
Reduce your firm’s exposure with professional liability coverage
Protection is essential, with the new legal risks surrounding the CTA for law firms. A claim of failure to advise or misfiling a report could lead to significant financial exposure. Protexure’s Professional Liability Insurance can help defend against these risks, covering errors such as missed filings, inaccurate legal advice, or conflicts of interest.
Do not let new regulations leave your firm vulnerable. Explore affordable, specialized policies for small firms today.
