On January 1, 2024, an important change in the Corporate Transparency Act (“CTA”) took effect. This change created ownership reporting requirements for private companies. Specifically, all entities, except sole proprietorships, some general partnerships, wealth planning trusts, unincorporated entities, and foreign entities not registered to do business in the United States, have to report to the federal government who the beneficial owners of the entity are. A beneficial owner includes anyone who exercises substantial control over the entity or owns or controls twenty-five percent or more of the entity. If the beneficial owners are not reported, fines can be levied or individuals can be sentenced to jail time.

As this reporting requirement is new, there are differing deadlines for reporting dependent on when the entity was created or registered to do business. For an entity created or registered before January 1, 2024, the entity has until January 1, 2025 to report. For an entity created or registered between January 1, 2024 and January 1, 2025, it has ninety days from the date it receives private or public notice of its creation or registration to report. Lastly, for entities created or registered after January 1, 2025, it has thirty days from the date it received private or public notice of its creation or registration to report.

Additionally, once an entity is reported, it must update the report within thirty days of certain changes. These changes include 1) any change to the information previously reported about the entity; 2) any change in beneficial owners; 3) any change to a beneficial owner’s reported information.

These new reporting requirements have already spawned one lawsuit, filed in Alabama, National Small Business United v. Yellen. The National Small Business Association (NSBA) and one of its members filed suit challenging the constitutionality of the new reporting requirements. In a ruling on March 1, 2024, the U.S. District Court for the Northern District of Alabama held that the new reporting requirements were unconstitutional and could not be enforced against the NSBA or the member that filed suit. The federal government has filed a notice of appeal of this ruling and stated it will continue to enforce the new reporting requirements against all entities that were not named plaintiffs in the NSBA lawsuit.

What does the NSBU holding and appeal mean for entities that are required to report under the new requirements of the CTA? If an entity is required to report under the CTA and was not a member of the NSBA prior to March 1, 2024, the federal government is requiring compliance with the currently published reporting requirements by the applicable deadlines. The appellate court may yet modify the breadth and impact of the ruling as may copycat lawsuits that may be filed in other jurisdictions.

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