Corporate Transparency Act Update

The Corporate Transparency Act (CTA) took effect on January 1, 2024 (and additional rules under the Act will go into effect beginning January 1, 2025). New business entities including limited liability companies (LLCs) and partnerships are now required to file reports with the Treasury Department’s Financial Crime Enforcement Network (FinCEN). These reports must disclose important information about their entity’s “beneficial owners” which include owners and important decision makers.

Currently this requirements only apply to businesses that were created in 2024. However, business entities that existed prior to January 1, 20214 must begin filing these reports next year.

As the new requirements have been rolled out, there have been a few legal updates, including law suits challenging the constitutionality of the new rules. This blog post will briefly outline the most current updates.

What Is the Corporate Transparency Act, and What are the Requirements?

Importantly, business owners should know that the CTA is a federal law that requires business entities, referred to as reporting companies, to disclose certain information about the company and its owners to FinCEN.

Under the CTA, a reporting company is defined as a corporation, LLC, or similar entity that is (i) created by filing a document with the secretary of state or a similar office under the laws of a state or Indian tribe, or (ii) formed under the laws of a foreign country and registered to do business in the United States. The following information about reporting companies in the United States must be included in the report:

the company’s full legal name and any trade name or doing business as (d/b/a) name
street address of the principal place of business
jurisdiction where the business was formed
tax identification number

Additionally, the reporting company must provide the following information to FinCEN about its beneficial owners, defined as persons who hold significant equity (25 percent or more ownership interest) in the reporting company or who exercise substantial control over the reporting company:

full legal name
date of birth
current residential or business address
unique identification number from an acceptable identification document or FinCEN identifier

For reporting companies created on or after January 1, 2024, the same information must be provided about the company applicant, the person that files the creation documents for the reporting entity.

Some Current Litigation

A number of parties impacted by the new rules have filed legal challenges throughout the United States. So far, none of those legal challenges appear to have a very far-reaching impact on the new reporting requirements under the CTA, but we will review some of the most important cases here:

National Small Business United v. Yellen

On Friday, March 1, 2024, in National Small Business United v. Yellen, a federal trial judge in the United States District Court for the Northern District of Alabama ruled via memorandum opinion that the CTA is unconstitutional because Congress lacks the authority to require companies to disclose personal stakeholder information to FinCEN.

The National Small Business Association (NSBA), an Ohio nonprofit organization representing more than 65,000 businesses from all 50 states, and Issac Winkles, an NSBA member and owner of two small businesses, had brought suit against the US Department of the Treasury and Treasury Secretary Janet Yellen, alleging that the mandatory disclosure requirements imposed by the CTA exceeded Congress’s authority under Article I of the US Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments.

The US Department of Justice has since filed an appeal of the district court’s decision with the US Court of Appeals for the Eleventh Circuit asserting that the CTA is constitutional. The appeal is still underway.

Boyle v. Yellen

On March 15, 2024, William Boyle initiated a lawsuit in the US District Court for the District of Maine alleging that the CTA is unconstitutional. Boyle’s lawsuit states that Congress exceeded its authority under Article 1 of the Constitution and encroached upon the states’ respective sovereignties in violation of the Ninth and Tenth Amendments and constitutional principles of federalism and retained state sovereignty.

Small Business Association of Michigan v. Yellen

On March 26, 2024, the Small Business Association of Michigan, Chaldean American Chamber of Commerce, Steward Media Group, LLC, Power Connections Co, LLC, Derek Dickow, Semper Real Estate Advisors, LLC, and Timothy A. Eisenbraun, filed a complaint for declaratory judgment and injunctive relief alleging that Congress exceeded its constitutional authority, the CTA amounts to an unreasonable search and seizure, and the CTA is a violation of due process. In response, the US Department of Justice has filed a brief asserting the constitutionality of the CTA.

Where Do We Go from Here?

While the various challenges to the CTA are still underway, only one case (the Alabama case) has reached an initial decision, and that decision is being appealed. The other cases remain pending and we expect additional lawsuits will be filed in the near future. The decision in the Alabama case determining that the CTA was unconstitutional only applies to the named plaintiffs. Accordingly, anyone who was not part of that case is still required to comply with CTA requirements.

We understand that the landscape is constantly evolving, and we are here to keep you updated so you can comply with all applicable laws. For now, though, it appears business owners throughout the United States should be careful to ensure they are complying with the newly implemented requirements of the CTA.

If you have questions about the CTA or what it might mean for your business, give feel free to contact us.