Shareholder
The Corporate Transparency Act is held to be Unconstitutional by an Alabama District Court. So now what?
By Tricia Koss and Caitlin Izzo
On March 1, 2024, Judge Liles Burke of the U.S. Federal District Court for the Northern District of Alabama (the “District Court”) ruled that the Corporate Transparency Act (“CTA”) is unconstitutional because of its inability to be “justified as an exercise of Congress’ enumerated powers” and that “such an expansion of federal power is not the ‘proper means’ for making those [policy goals] effective.” This has come as the result of a lawsuit brought by the National Small Business Association, an Ohio nonprofit corporation (“NSBA”) against Janet Yellen in her capacity as the Treasurer of the United States.
As we previously alerted clients and friends, effective as of January 1, 2024, the CTA requires so-called Reporting Companies to disclose beneficial ownership information (“BOI”) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury. The ruling in NSBA v. Yellen represents a major and timely disruption to the ongoing implementation of the CTA, just as many entities began making initial filings with the agency.
Shortly after the decision in NSBA was released, FinCEN issued an official notice responding to the ruling and reminding all that the District Court’s ruling is narrow in application and applies to the plaintiffs in the case only. The District Court did not extend the applicability to all entities; however, it did outline a path forward as to how the CTA may be amended in the future to make it constitutional.
So, what does this mean for you and your entity?
As of now, the CTA is only unconstitutional as applied to members of NSBA as of March 1, 2024. Time will tell whether this decision gains national traction, through similarly filed cases in other jurisdictions, through appeals of the ruling, or through future amendments by lawmakers.
As we continue to monitor the litigation and the overarching constitutionality of the CTA, we recommend that any entity created prior to January 1, 2024, (which under the CTA has until December 31, 2024 to make their initial CTA filings), adopt a wait-and-see approach and hold off on making these filings while this issue continues to unfold. As for entities created after January 1, 2024 (and for which a 90-day filing deadline still applies), we continue to recommend timely compliance with the CTA, however, with the caveat that clients should wait to make any such filings until just prior to the expiration of the requisite 90-day reporting period to again allow as much time as possible to for the issue unfold.
For more information:
If you have any questions about this Alert, please contact Attorneys Tricia L. Koss (tkoss@fletchertilton.com) or Michael P. Duffy (mduffy@fletchertilton.com), or any one of the attorneys with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and issued for informational purposes only and is not offered, nor should it be considered to be, legal advice.