Important Update – The Corporate Transparency Act: What Small (and Not-So-Small) Businesses Need to Do

Update (March 12, 2024): On March 11, 2024, the U.S. Justice Department, on behalf of FinCEN and the Department of the Treasury, filed a notice of appeal with respect to the federal district court’s decision in National Small Business United v. Yellen, and FinCEN issued a statement that FinCEN will continue to implement the Corporate Transparency Act while complying with the court’s order. Accordingly, other than the plaintiffs in the case subject to the court’s injunction, reporting companies under the CTA must comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.       

Update (March 5, 2024): On March 4, 2024, FinCEN issued a statement that it is not currently enforcing the Corporate Transparency Act against the plaintiffs in National Small Business Association v. Yellen only, which FinCEN described as including members of the National Small Business Association “as of March 1, 2024.” This is consistent with the scope of the court’s March 1, 2024 order. As such, pending further court orders or FinCEN guidance, all other companies and their beneficial owners should continue to view the CTA as in full force and prepare to make required filings by the applicable deadlines.

On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the Corporate Transparency Act (“CTA”) was unconstitutional because it cannot be justified as an exercise of the powers of Congress enumerated in the U.S. Constitution. The court permanently enjoined the federal government from enforcing the CTA against the named plaintiffs (the National Small Business Association and one of its members). It is not yet clear how the court’s ruling would apply to persons that are not parties to the case, and it is highly likely that the federal Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Treasury Department will appeal the decision.

In light of the uncertainty regarding the CTA’s validity (and despite the court ruling), we recommend that companies subject to the CTA continue their CTA compliance preparations (for example, continue to collect beneficial ownership information from their 25% equity holders, senior officers, and anyone else covered by the CTA). We also recommend, though, the companies consider waiting to file their beneficial ownership reports (“BOI Reports”) with FinCEN until either there is greater clarity – from the federal courts or FinCEN – on the continued effectiveness of the CTA or the deadline for the filing is near. Companies formed on or before January 1, 2024 would not otherwise be required to file BOI Reports under the CTA until December 31, 2024; we have previously advised that those companies consider not filing until late in 2024, and that advice is unchanged. Companies formed after January 1, 2024 have 90 days from the date of their formation to file their initial CTA reports. The earliest deadline for those companies is still several weeks away; those companies should continue to monitor CTA developments and be prepared to file their BOI report, potentially on short notice, if the validity of the CTA is resolved in the government’s favor.

A much more detailed discussion on who is required to report under the CTA and the information that a company subject to the CTA (“reporting companies”) must disclose, is available here.

Please call us with any questions on the CTA. You can reach our CTA Team at [email protected] or you can contact an attorney listed under “Associated People” above.