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U.S. District Court Rules CTA Unconstitutional

A U.S. District Court judge in Alabama has ruled that the Corporate Transparency Act (CTA) is unconstitutional.  For now, however, the injunction only applies to the plaintiffs in the lawsuit.  All other reporting companies (who are not plaintiffs in this case) are still bound by the CTA and should continue to comply for now.

As a reminder, under the CTA, companies must disclose the identities and other information about anyone who owns a stake of at least 25% or exercises significant control over the company. Existing companies have until the start of 2025 to file their disclosures. Companies created or registered in 2024 have 90 days to comply.  If a deadline for a newly formed company is imminent, then we still suggest it files its report, notwithstanding the ruling of the Alabama Court.  For those companies without imminent deadlines, they may want to hold off and see how this lawsuit continues to develop.

The plaintiffs in this case, the National Small Business Association and one of its members, sued in November 2022, seeking a permanent injunction against the implementation of the CTA reporting rules.   On March 1, 2024, a U.S. District Court judge in Alabama ruled that the CTA is unconstitutional because it “exceeds the Constitution’s limits on the legislative branch” and fails the “necessary and proper” test. This decision will not be the end of the matter.  We expect the U.S. government will appeal the decision to the Court of Appeals for the Eleventh Circuit.  These court cases can be lengthy and uncertain processes and this could easily be overturned by the Eleventh Circuit.