The below is merely informational and does not communicate, whether intentionally or otherwise, any legal, compliance, or other advice.

In our blog article, to be released later this month, we discuss the Corporate Transparency Act or “CTA,” which became effective January 1 of this year. The CTA is a sweeping piece of federal anti-money laundering legislation that, if it stands – and by the U.S. government’s own estimate – will require some 32,600,000 business entities to report sensitive information concerning not only the identities and identifying personal information of their owners, but also for a range of other persons falling within the CTA’s ambit. The penalties for non-compliance are serious and applied not against the business, but directly against those persons tasked under the CTA with making initial and amended disclosures and beneficial ownership interest reports. 

There is, however, hope that the CTA is vulnerable to constitutional challenge. On March 1, 2024, in Nat’l Small Bus. United v. Yellen (a copy of which can be found here) the U.S. District Court for the Northern District of Alabama struck down the CTA’s application against the Plaintiffs, the more critical of the two being the National Small Business United d/b/a the National Small Business Association (“NSBA”), which represents approximately 65,000 members across the United States. Ruling in favor of the Plaintiffs, the court stated that “the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be necessary or proper means to achieving Congress’ policy goals . . . .” 

For practical purposes, what does this decision mean for business owners?

  1. Is the CTA still law? The court’s ruling was limited to the Plaintiffs in the action. Accordingly, the CTA remains in effect for all subject businesses and those with reporting obligations under it. 
  2. Who benefits from the injunction? The Plaintiffs, including the NSBA directly benefit and at least for now, and as to them, the CTA is on hold. It is unclear whether the court’s ruling may also apply to the NSBA’s 65,000 members. Other affected beneficial owners and businesses will need to wait for further developments. 
  3. Is this the end of this case? In short, no. The government may well appeal the decision to the Eleventh Circuit Court of Appeals, and after that, an appeal to the U.S. Supreme Court remains a possibility.
  4. Why does this case matter? At least one U.S. District Court in a well-reasoned decision has ruled the CTA unconstitutional. While this one decision is limited in application, it nonetheless provides a road-map for so-called “copy-cat” lawsuits to challenge the CTA in other states. 
  5. What else to expect? The U.S. Treasury Department’s criminal enforcement bureau that is tasked with administering the CTA, called FinCen, may issue further guidance and commentary in the coming days. This may give a clue as to the government’s intentions regarding the CTA. Stay tuned.

The final impact of the court’s decision in Nat’l Small Bus. United remains to be determined. Accordingly, it would be better practice for those falling within the ambit of the CTA to comply with its reporting requirements for the present. For companies newly formed from and following January 1, 2024, reports required under the CTA would therefore remain due within 90 days of formation. And for companies formed earlier, necessary reports remain due by January 1, 2025. 

Please note that some states are seeking to implement their own CTAs; for example, the New York LLC Transparency Act, which like the CTA, went into effect January 1, 2024. To the extent your business transacts business outside of Georgia, the requirements of state mini-CTAs remain unaffected.

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Baker Jenner LLLP

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