What is the Corporate Transparency Act?
The Corporate Transparency Act (“CTA”) requires any corporation, limited liability company, or other similar entity that was created in the United States or any legal business entity that is registered to do business in the United States to file a Beneficial Ownership Interest (BOI) report with the Financial Crimes Enforcement Network (FinCen) of the Department of the Treasury. The Corporate Transparency Act was enacted into law by Congress with the goals of significantly reducing illicit financial activities, such as money laundering, and preventing financial fundraising and support of organized criminal associations and terrorism within the United States and abroad.
What does a BOI Report Require?
The “Beneficial Owners” of a company include those with 25% ownership interest or those who have significant power over financial business decisions in a U.S. based or registered company or business. The BOI report requires the following information:
- legal name, date of birth, address, and the identifying number and issuer from either a non-expired U.S. driver’s license, non-expired U.S. passport, or a non-expired identification document issued by a U.S. state, local government, or Native American Tribe. If none of those documents are available for the owner then a non-expired foreign passport can be used. An image of the document must be submitted.
- The company must also submit certain, specific information about itself: its name(s), respective addresses of the headquarters or registered office, and its Employer Identification Number (EIN). Reporting companies created in 2024 are required to submit information about the individuals who formed the company, described as the “company applicants” in regards to the BOI report.
How was the CTA ruled Unconstitutional?
On Friday, March 1, 2024, the United States Northern District Court of Alabama ruled that the CTA is unconstitutional, as it “transcends the limits imposed by the Constitution on the legislative branch and lacks a strong connection to any enumerated power to serve as a necessary or appropriate means to achieve Congress’ policy objectives.” The Northern District Court ordered that the Plaintiffs, members of the National Small Business Association, did not have to comply with the BOI reporting requirements established by the CTA, reasoning that requiring the owners to present and file personal data and identification documents, as described above, was congressional overreach.
What comes next?
The Northern District Court’s decision will very likely be appealed and could easily end up on the docket of the Supreme Court of the United States. The appeals process could take up to a few years, so don’t expect a final resolution on the CTA’s constitutionality any time soon.
Do I still have to file a BOI Report?
Likely yes. For most business owners, this ruling does not apply nor affect them at this time. The Northern District Court’s ruling applies exclusively to the members of the National Small Business Association. However, this decision may be a sign of things to come, as the constitutionality of the CTA as a will likely be under further scrutiny going forward. Despite the ruling, the majority of companies should be preparing to file their BOI Reports in compliance with the CTA.
