The federal Corporate Transparency Act, or CTA, went into effect on January 1 of this year. In brief, the CTA requires business entities to file information regarding their beneficial owners and persons involved in creating the entity with the Financial Crimes Enforcement Network, or FinCEN. New business entities formed on or after January 1, 2024 are required to file initial reports within 90 days of their formation. Entities that were in existence prior to January 1, 2024 have until January 1, 2025 to file an initial report. For more information, see our Corporate Transparency Act Q&A.
While new and existing businesses have been working to comply with these new requirements, a case was making its way through the United States District Court for the Northern District of Alabama. A major ruling in the case, National Small Business United v. Yellen, came out on March 1, 2024. Judge Liles C. Burke issued an opinion concluding that the CTA exceeds the Constitution’s limits on the legislative branch and is therefore unconstitutional. The court characterized the case as illustrative of the principle that “Congress sometimes enacts smart laws that violate the Constitution.”
This leaves tens of millions of business owners wondering what to do next. Do they still need to worry about the CTA?
The answer, for the time being, is yes. The stay of enforcement of the CTA applies only to the companies involved in the Alabama litigation; there is no nationwide relief. Furthermore, the government is almost certain to appeal this ruling. Entities formed after January 1, 2024, should continue to file initial ownership reports within 90 days of formation. Entities that were in existence before January 1, 2024 should continue to plan to file initial ownership reports before January 1, 2025.
