Previously, we published a blog post informing readers of the new federal Corporate Transparency Act (“the CTA”) and similar  New York state law requiring all corporations and limited liability companies, inter alia, to disclose their beneficial owners. Under the CTA, the disclosures must be made to the Financial Crimes Enforcement Network (FinCEN). Since publication of the post, the United States District Court for the Northern District of Alabama decided National Small Business United, d/b/a the National Small Business Association, et al. v. Janet Yellen, in her official capacity as Secretary of the Treasury, et al. The Court held that Congress does not have the power under its Foreign Affairs and National Security authority, Commerce Clause authority, nor its Taxing Power and Necessary and Proper Clause authority to enact the CTA. As such, the Court granted a preliminary injunction in favor of the plaintiffs, enjoining the government from enforcing the CTA against the plaintiffs.

Impact of the Court Decision

The Justice Department immediately appealed this decision and FinCEN issued a statement advising the public that FinCEN will continue to enforce the CTA against all applicable entities except for the plaintiffs in the action. FinCEN advised that reporting companies are still required to comply with the law and file beneficial ownership reports in a timely manner. As a reminder, corporations and limited liability companies (with limited exceptions) created before January 1, 2024, must file their beneficial ownership form by January 1, 2025. All corporations and limited liability companies (with limited exceptions) created after January 1, 2024, must file their beneficial ownership form within 90 days of their formation. 

Notably, the Alabama case only discusses the CTA’s constitutionality and has no effect upon any similar state statutes, including New York’s. The law in New York takes effect on December 21, 2024, and requires qualifying entities registered to do business in New York to disclose beneficial ownership information to the New York Department of State. 

Both the CTA and New York statutes impose significant fines for non-compliance.

Next Steps for Business Owners

The Alabama case has the potential to shake up this landscape and may eventually lead to an outright finding that the CTA is unconstitutional on a national scale. At this time, any member of an LLC or a shareholder in a corporation should contact one of our business attorneys who can advise on balancing privacy rights and interests while simultaneously staying in compliance with the relevant statutes. We will also continue to keep readers apprised of any developments on the CTA as well as any New York state court decisions related to the state’s new law. 

A MESSAGE TO OUR EXISTING CORPORATE CLIENTS

Please expect to hear further from us on this issue in the near future.