You may have read in the news recently that the new federal law, the Corporate Transparency Act, has been held unconstitutional.  Well, yes.  By a federal judge in Alabama.

This new law became effective on January 1, 2024 and applies to the majority of small businesses and their owners in the United States.  If you are unaware of this, please read my blog articles here. 

The Corporate Transparency Act

The law requires most small businesses (there are some exceptions) to register with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by providing information about the business entity, its Beneficial Owners, and its Company Applicants.

• A Beneficial Owner is someone who either (i) owns 25% or more of the entity’s stock or interests or (ii) has substantial control over the entity, as defined by the law.
• A Company Applicant is the person who files the documentation to form the business entity with - in Arizona - the Arizona Corporation Commission or the Secretary of State.
• The information required to be filed for a Beneficial Owner or Company Applicant includes their name, address, birthdate, and a photo of their driver license or passport.

The Lawsuit

Last month, a business owner in Alabama, in conjunction with the National Small Business Association, filed suit against the U.S. Treasury Department in the United States District Court for the Northern District of Alabama.  In National Small Business United, et al., v. Yellen, et al., the plaintiffs argued that the CTA’s mandatory disclosure requirements exceed Congress’ authority under Article I of the Constitution and violate the First, Fourth, Fifth, Ninth, and Tenth Amendments.

In response, the Treasury Department argued that the law falls within the Commerce, Taxing, and Necessary and Proper Clauses, along with Congress’ foreign affairs and national security powers.

The Ruling

The Court ruled that the CTA is unconstitutional for exceeding the Constitution’s limits on Congress’ enumerated powers, without addressing any potential violations of the Amendments.

Importantly, the ruling applies only to the Alabama plaintiffs in this case and the CTA remains effective and enforceable in all other states unless and until further legal action changes that.

What it Means for Arizona Businesses

For businesses in Arizona, until there is a nationwide ruling, I strongly recommend compliance with the CTA’s deadlines:

• Businesses registered with the Arizona Corporation Commission or Secretary of State prior to January 1, 2024 must register its Beneficial Owner Information reports by December 31, 2024.  No need to file early, mark your calendar for 4th quarter.
• Businesses registered between January 1, 2024 and December 31, 2024 must file with FinCEN within 90 days of formation.  If your entity was formed in January, that deadline is fast approaching for you.
• Businesses that register on or after January 1, 2025 must file within 30 days of formation.

If you have any questions about the provisions of the CTA or how to determine your entity’s Beneficial Owners and Company Applicants, just give me a call and let’s get together to discuss.

NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

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