Corporate Transparency Act

Fresh Out of the Courts – Corporate Transparency Act

Corporate Transparency ActThis year signaled a major shift in corporate reporting in California.  In short, the Corporate Transparency Act (Act) came into effect January 1, requiring certain companies to report on beneficial ownership.  While business lawyers at HVP have been preparing for the new reporting requirements under the Act, there have been legal challenges to the Act making its implementation uncertain.  Most recently, a federal district court in Alabama has ruled on a case which attacked the constitutionality of the Act. Last week the federal district court ruled that the Act is unconstitutional because it was not within Congress’ enumerated powers. While it would at first glance seem like a ban to the Act, the ruling itself was very narrow.  Finding the Act unconstitutional only as it relates to the named plaintiffs in the case.  Thus, the ruling would seem so limited.   In response to the ruling, the Financial Crimes Enforcement Network issued a notice that the plaintiffs in the case are not required to comply with the beneficial ownership reporting at this time.

In short, this means that the ruling is a step towards limiting the Act, however, at this time, the ruling does not apply to companies outside of that particular case that was before the court.  What does this mean for other companies? Companies should stay the course and comply with the Act’s reporting requirements as lawyers continue to monitor the developments that may evolve from the case.