The Big Story: Ownership disclosure law creates burdens for startups
This week, the Small Business committee held a hearing exploring the Corporate Transparency Act’s impact on small businesses. The Corporate Transparency Act (CTA) creates new compliance obligations and administrative burdens for startups, requiring most businesses to report information about their "beneficial owners"—those who ultimately control or profit from the company—to the Financial Crimes Enforcement Network (FinCEN), or face penalties for noncompliance. Many startups are unaware of their obligations under the law, and those that are have spoken up about its burdens.
The CTA was enacted in 2021, but reporting obligations go into effect this year. The law has faced numerous legal challenges, including in Alabama where a District Court Judge sided with the National Small Business Association in their challenge to the CTA and its beneficial ownership information requirements. Legislators have also questioned the implementation of the law, including the scope of information that must be collected and remitted (and who has access to that information), particularly as FinCEN reports just a small fraction of companies have submitted reports.
Engine submitted a statement for the record for this week’s hearing, detailing how startups may be affected by the CTA’s requirements. As we told the committee, “[w]hile most large companies are well equipped to address new and evolving regulations, both in terms of resources, staff, and time, many startups will likely struggle to meet reporting requirements, especially as they will have to be continuously updated in a short time frame if there are any changes to their company or beneficial owners that should be reflected in the report.” Moreover, for some startups, the composition of their cap table can complicate what information must be reported. José Padilla, founder of LegalMente AI, recently touched on the impacts of the CTA and state efforts to pass similar measures, telling Engine, “I think any additional regulatory burden makes life harder for those with less resources, such as startups.”
Congress should continue examining how the CTA will impact small businesses and startups, and how onerous reporting requirements disadvantage companies with fewer resources, particularly as legal challenges continue to unfold.
Policy Roundup:
Lawmakers seek to add unrelated tech regulation to must-pass authorization bill. This week, Senate sponsors of several tech measures that would drastically change the legal landscape for startups filed amendments seeking to add them to a Federal Aviation Administration package before the agency’s authorization expires next Friday. The bills, among others, include the Kids Online Safety Act, and the Children and Teens’ Online Privacy Protection Act—well meaning legislation that is rife with unintended consequences that will undermine the competitiveness of startups. House Speaker Mike Johnson (R-La.) meanwhile has expressed his desire to avoid the reauthorization becoming “a Christmas tree of unrelated items.” These pieces of legislation need to be further improved to avoid damaging the startup ecosystem and should continue to be considered through regular order.
National Small Business Week highlights importance of supporting startup success. This week marked National Small Business Week, with policymakers, advocates, and startups emphasizing the need for a policy landscape that supports innovators. Engine, alongside a dynamic group of startup founders representing various industries, met with policymakers to share their experiences building companies and perspectives on key policy topics like AI, data privacy, and capital access. It’s imperative that startups are consistently included in policy discussions to ensure that policymaking fosters their success nationwide.
Federal Internet affordability subsidy expires, funding extension faces uncertainty. The Affordable Connectivity Program (ACP), a key federal subsidy that makes high-speed Internet service more affordable for families, ran out of money as April came to a close. More than 23 million U.S. households will be impacted, among them innovators and students who may lose Internet access due to lack of affordability. Startups and their users are located in communities all across the country and without programs like the ACP to make Internet service more affordable, many are unfairly shut out of the startup ecosystem, hindering innovation and economic growth. Bridging the digital divide is necessary for an equitable startup ecosystem and policymakers must pass legislation to extend this critical program.
Senate, Federal Trade Commission pursue similar efforts to impose liability for Generative AI. The Senate IP subcommittee held a hearing this week to discuss the Nurture Originals, Foster Art, and Keep Entertainment Safe (NO FAKES) Act, a draft bill that would impose liability for the unauthorized creation of AI-generated content of individuals' voices and likenesses. Also this week, the Federal Trade Commission wrapped up soliciting input on a proposed rulemaking that would impose overbroad liability as they attempt to combat impersonation fraud. As we highlight in our submission, imprecise regulation that places burdens on startups—and not specifically on malevolent actors exploiting technology for illegal purposes—is the “wrong approach and should be avoided.”
Patent and trademark agency unveils national strategy to uplift entrepreneurship. On Wednesday, the U.S. Patent and Trademark Office (USPTO) put forward a National Strategy for Inclusive Innovation, designed to bolster participation from underrepresented communities in STEM, inventorship, and innovation. Engine contributed to the creation of the strategy through extensive comments explaining how government can expand American innovation, with an emphasis on equity in the startup ecosystem for women and people of color. As we explained in the comments, underrepresented founders face barriers across all facets of the ecosystem, from significant challenges accessing the capital they need, to shortcomings in STEM education, to disparities in patent ownership. We commend the USPTO for taking steps to bring equity to innovation, and encourage all government agencies to similarly explore how to boost diversity so entrepreneurs from all backgrounds can succeed.
