Understanding Corporate Transparency Act Compliance After Recent Court Rulings

At Strauss Troy, we have written multiple times on the Corporate Transparency Act (“CTA”), in posts that are linked in the footnotes to this article, but recent developments have resulted in confusion among business owners regarding what their respective obligations under the CTA are[1].

Generally speaking, the CTA began to require on January 1, 2024, certain “Reporting Companies” as defined in the CTA to report to FinCEN certain information about the Reporting Company and about the “Beneficial Owners” of the Reporting Company, and for companies created after January 1, 2024, also information regarding their “Company Applicant”.

Over the course of the past several months, the majority of CTA related news headlines have concerned legal challenges to the constitutionality of the CTA, in light of a March 1, 2024 ruling by the U.S. District Court for the Northern District of Alabama that the CTA was unconstitutional. The case, National Small Business United v. Yellen, has resulted in confusion among business owners and Reporting Companies over the status of the CTA, as many headlines have broadly declared that the CTA is unconstitutional.

However, Reporting Companies should be aware that the Court’s ruling in National Small Business United v. Yellen is limited in that it only applies to the Plaintiffs in that particular case: the NSBA, and its members who were members as of March 1, 2024. The ruling is currently being appealed, and numerous other legal challenges are working their way through respective courts nationwide.

With that said, unless a Reporting Company was a plaintiff in National Small Business United v. Yellen, or was a member of the National Small Business United d/b/a National Small Business Association (“NSBA”) as of  March 1, 2024, the CTA is still in effect, and is still enforceable by FinCEN. In fact, FinCEN issued a statement to that effect on its website, clarifying that “While this litigation is ongoing, FinCEN will continue to implement the Corporate Transparency Act as required by Congress, while complying with the court’s order. Other than the particular individuals and entities subject to the court’s injunction, as specified below, reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”[2]

Thus, the bottom line for companies other than those covered by the National Small Business United v. Yellen ruling is that the CTA is still enforceable and effective, and such companies should plan to meet their respective CTA obligations in a timely fashion. With respect to entities formed on or after January 1, 2024, and before January 1, 2025, Reporting Companies must comply with the CTA and make the requisite  reports with FinCEN within 90 days of formation, unless one of the CTA’s 23 exemptions applies. With respect to entities formed prior to January 1, 2024, applicable reports must be filed before January 1, 2025. Failure to comply may result in substantial monetary penalties, including potential criminal liability and monetary fines of $500 per day of non-compliance.

This is an evolving area of the law, and the status of the CTA may change by the time you read this article, so business owners should stay vigilant. If you would like more information on the CTA, or would like to know how it concerns your company, please feel free to contact Austin Stevenson at RAStevenson@strausstroy.com , or at 513-768-9745, to inquire about Strauss Troy assisting your Reporting Company with CTA obligations.

[1] https://www.strausstroy.com/articles/preparing-for-the-corporate-transparency-act-part-i-what-is-it ; https://www.strausstroy.com/articles/preparing-for-the-corporate-transparency-act-part-ii-who-is-a-beneficial-owner-and-what-gets-reported ; https://www.strausstroy.com/articles/preparing-for-the-corporate-transparency-act-part-iii-who-is-exempt/ ; https://www.strausstroy.com/articles/corporate-transparency-act-update

[2] https://www.fincen.gov/boi

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