In the last few months, everyone has been talking about the Corporate Transparency Act (CTA), its Beneficial Ownership Information Reporting (BOIR) requirements, and how to comply with it, but a recent twist has stirred considerable debate and confusion among business owners and legal professionals. With Alabama’s court deeming the CTA unconstitutional, there’s a palpable sense of confusion. Does this mean we can halt compliance efforts altogether? Not really, let’s dive into it.
Understanding the Ruling
On Friday, March 1, the district court, led by Judge Liles Burke, granted the plaintiffs’ motion for summary judgment in the case of National Small Business United v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. 3/1/24), highlighting significant constitutional questions regarding privacy and federal authority. One plaintiff, the National Small Business Association, with over 65,000 members, challenged the federal mandate that companies report their beneficial ownership to the Treasury Department, ultimately resulting in the court’s declaration of the CTA as unconstitutional.
The court’s decision scrutinizes the requirement of the CTA for companies to divulge personal stakeholder information to the Treasury’s criminal enforcement arm. However, the immediate impact of the ruling is confined, specifically restraining the enforcement of the CTA’s reporting obligations solely against the plaintiffs rather than universally across all U.S. businesses. The court remarked in its opinion that the government’s arguments asserting Congress’s authority to regulate millions of entities and their stakeholders upon obtaining formal corporate status from a state “are not supported by precedent.” This underscores the delicate balance between governmental oversight and individual privacy rights, reminding us that businesses should not be compelled to disclose such sensitive information without clear legal grounds.
What does this mean for business owners?
FinCEN recently released a notice regarding the case, stating that “the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024).” This notice underscores the importance of remaining vigilant and complying with the CTA’s requirements, as the decision pertains to specific plaintiffs and does not imply a nationwide suspension of the law.
The immediate consequences of the ruling may not be felt by those with entities formed before 2024, as they have the entirety of this year to observe legal developments before filing.
However, a more pressing situation arises for entities formed in 2024. With only a 90-day window from formation to file, the risk of non-compliance with potential future legal requirements looms large. Failing to file within this timeframe could result in serious consequences, potentially constituting a legal violation.
Our recommendation
At Legacy Counsel, we will continue to follow the updates in the developments surrounding the fate of the Corporate Transparency Act, but we still advise small business to comply with the BOI reporting, especially for those that have a deadline soon. If you need assistance give us a call.
