Businesses operating in the United States need to remain compliant with all applicable federal statutes, including new laws addressing gaps in the current regulations. For example, in 2021, lawmakers passed a new law intended to regulate business entities operating in the United States.
The Corporate Transparency Act (CTA) received bipartisan support in part because it promised improved government oversight of businesses with opaque structures. The CTA requires that organizations like limited liability companies (LLCs) and corporations submit a report to the Financial Crimes Enforcement Network (FinCEN) identifying those who have invested in the business and those who helped start the company.
In theory, the CTA took effect as of the beginning of 2024. What is the current status of the CTA?
A court has ruled the law unconstitutional
In early March, a North Alabama federal court judge entered a more than 50-page ruling on the CTA alleging that it is an unconstitutional law. The assertion is that lawmakers overstepped their authority by requiring that businesses identify those who have invested in a company or helped to start a business.
While thousands of companies have submitted beneficial ownership interest (BOI) reports to FinCEN, many others have not yet done so. Additional judicial scrutiny is likely necessary to determine whether the CTA is an enforceable law or not.
At the same time that the judge decided the CTA might be an unconstitutional law, there have been rumblings that the law could have a broader impact than people initially expected. For example, there are claims that the CTA also applies to real estate transactions, including condominium purchases, involving businesses or corporate entities.
Currently, those starting new businesses and those invested in existing companies may not be certain about whether the CTA applies to them or not. Parties that fail to file proper reports, should the courts eventually uphold the CTA, could face large fines for violations of the law.
Consulting with an attorney may help those with an interest in a business better evaluate if a BOI report is necessary for a particular business entity. Those who ensure proactive compliance with federal regulations face less risk involved in operating a company. Tracking the implementation of new laws and major legal cases related to business statutes can help ensure more thorough compliance with regulatory requirements.