Federal District Court Rules Corporate Transparency Act Unconstitutional . . . But Most Small Businesses Must Still Comply

By Cameron Grant, Real Estate and Business Attorney, Lyons Gaddis

You may have heard of the Corporate Transparency Act (CTA) from your banker, lawyer, CPA, or someone speaking to your local Chamber of Commerce. What has been billed as the most sweeping legislation of small business in decades bears close attention.  

In 2021, Congress passed the CTA, which was designed to prevent the use of small business entities for money laundering and terrorism. This meant that as of January 1 of this year, most U.S. business entities are required to file a report listing the name of their “beneficial owners” – those who hold at least 25% of the company or exercise significant control.

In March, a U.S. District Court in Alabama found the CTA unconstitutional because it “exceeds the Constitution’s limits on the legislative branch,” ruling in favor of the National Small Business Association (NSBA). However, the ruling is very narrow and only applies to NSBA members. The rest of us are still subject to the CTA and should consider its requirements and deadlines.

Lyons Gaddis advises our small business clients to approach filing slowly. In the wake of the Alabama Federal Court case, future challenges may alter the applicability of the CTA.  Absent a new ruling that changes the rules, we expect to be managing a large number of filings beginning in early summer and plan to complete all filings by early fall, avoiding a year-end rush to meet the deadline.

Here are some specifics that you should be aware of:

Deadlines

• 90-Days Following Formation. Newly formed entities must file reports within 90 days of formation (30 days beginning in 2025).
• December 31, 2024. Existing entities must file by the end of this year.
• 30-Days After Information Changes. If the beneficial owner information (BOI) changes because you move or otherwise, you must file an update within 30 days.

Who Must File?

• Reporting Companies mean any corporation, LLC, or other entity created in the U.S. by filing a document with a secretary of state or similar office. Foreign entities registered to do business in the U.S. must also file. Certain exemptions (23 in total) apply to highly regulated industries such as banking, tax-exempt entities, and large companies. 
• Beneficial Owners. Any individual who exercises substantial control over a Reporting Company or owns or controls at least 25% of the company must provide their information, including any company officer, manager of an LLC, general partner of a limited partnership, and some members of the board of directors.
• Company Applicants. For companies formed after January 1, 2024, an individual who is the “direct filer” or who “directs or controls the filing action” must also provide their BOI. This will include the person who submits documents to the Secretary of State to form the entity and any individual who directs that person to submit the documents.  

How do you File?

Reporting Companies may file themselves at the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) website: https://boiefiling.fincen.gov. You may also use a servicing company to complete the filing.  

As with any complex legal matter, such as managing the intricacies of the Corporate Transparency Act, the team at Lyons Gaddis is here to simplify and manage your needs and to help answer your questions. Our experienced attorneys provide counsel that will ensure that your business is in compliance and positioned for success. 

Lyons Gaddis | 303-776-9900 | https://www.lyonsgaddis.com/

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