For background and further information on the Corporate Transparency Act, including who must comply with it, check out our earlier blogs here:
- https://www.stocklegal.com/blog/the-corporate-transparency-act-what-you-need-to-know
- https://www.stocklegal.com/blog/the-corporate-transparency-act-preparing-for-compliance-1
On Friday, March 1, the U.S. District Court for the Northern District of Alabama held that the Corporate Transparency Act (“CTA”) is unconstitutional. The Court found that the CTA “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.” After this finding, the Court permanently enjoined the government from enforcing the CTA against the named plaintiffs (the National Small Business Association and one of its members).
This Court ruling only applies to the Northern District of Alabama, but it is otherwise unclear as to the implications of the ruling against persons not party to the case.
It is expected that the federal Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Treasury Department will appeal the decision. We also anticipate that additional cases will be filed and that other courts will address the question of whether the CTA is constitutional.
Although there is newfound uncertainty regarding the CTA’s validity, we are recommending that newly formed entities that are considered to be a “Reporting Company” continue to comply with the CTA, although such entities may consider waiting to file their initial beneficial owner information report (“BOIR”) until closer to the deadline for filing (90 days after the entity was formed). We are also recommending for those entities that are a “Reporting Company” but that were in existence prior to January 1, 2024, that they consider delaying the filing of their initial BOIR until later in the year once there is more clarity as to the validity of the CTA.
