Corporate Transparency Act Deemed Unconstitutional

In representing hundreds of small business owners and non-profits (including homeowners associations and condominium associations), our Firm has been asked several times about how the Corporate Transparency Act ("CTA") would affect their business and impact their own individual privacy. When enacted, the CTA required certain entities to disclose information about their "beneficial owners" to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The primary aim of the CTA was to enhance corporate transparency and prevent the illicit use of anonymous shell companies for money laundering, terrorist financing, and other financial crimes. However, on March 1, 2024, prior to these requirements coming into effect, the CTA was deemed unconstitutional.

In the case of National Small Business Association et al. versus Janet Yellen et al. regarding the constitutionality of the Corporate Transparency Act (CTA), the court found the CTA unconstitutional. The plaintiffs argued that the Act, which required entities to disclose personal stakeholder information, exceeded Congress's constitutional authority. The court granted the plaintiffs' motion for summary judgment, stating that the CTA went beyond legislative power limits and lacked a sufficient connection to enumerated powers. The Court criticized the CTA for imposing broad reporting requirements without a direct connection to interstate commerce, foreign affairs, or national security. Read more here.

Since the court found the CTA unconstitutional, it means that the requirements imposed by the Act, which mandated entities to disclose personal stakeholder information, are not legally enforceable. Here are potential effects for our small business owner and/or homeowners and condominium association boards:

• Reduced Reporting Burden: The CTA's reporting requirements, deemed unconstitutional, are no longer applicable, so directors won't be compelled to provide detailed personal information about their beneficial owners to the Treasury Department.
• Privacy Protection: Boards of directors can operate with greater assurance that they are not required to disclose certain information, thus protecting privacy rights of individuals board members.
• Legal Clarity: The court's decision provides legal clarity for directors, offering assurance that they are not obligated to make these disclosures, and thus not need to seek legal guidance just on how to fulfill those requirements.
• Potential Legislative Response: It's worth noting that the unconstitutionality of the CTA does not preclude the possibility of future legislative actions or revisions. Boards of directors should stay informed about potential developments in corporate transparency regulations and be prepared to adapt if new legislation is introduced.

While this is probably welcome news for many of our clients, we must remain vigilant on how it applies and what may change in the future. We encourage our clients to reach out to us or their attorney to ensure they are in compliance with any relevant corporate laws.