Federal Court Rules that Corporate Transparency Act is Unconstitutional, but the Scope of the Decision is Limited
In a ruling with very specific and limited impact, the U.S. District Court for the Northern District of Alabama recently held the Corporate Transparency Act (the “CTA,” the subject of a recent post on this blog) unconstitutional on the grounds that the CTA exceeds Congress’s legislative powers. It’s important to note that businesses that were not parties to this litigation are, at least for now, still obligated to comply with the CTA.
The Impact of the Court’s Decision
On March 1, 2024, the court ruled and issued an injunction against the government. However, the ruling only applies to the plaintiffs of the case, including the National Small Business Association and its members, which means the CTA remains enforceable for businesses outside of this group.
The federal government is likely to appeal the decision, and the outcome of such an appeal could reinstate the CTA’s full enforceability. That said, this lawsuit and its outcome may lead to similar litigation, and additional courts may—or may not—reach a similar conclusion.
What Should Businesses Do?
The most prudent course of action for business owners, particularly those for whom complying will require significant time and resources, is to proceed as though the CTA will remain in effect, including gathering necessary beneficial ownership information and setting up internal processes for reporting.
However, it’s important to monitor developments given the likelihood of additional litigation challenging the CTA’s constitutionality.
We will continue to update you on new developments as they arise.
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