The new law known as the Corporate Transparency Act, which required LLCs and corporations to register its ownership and management with the federal government has been ruled unconstitutional by a federal Judge in Alabama in National Small Business United v Yellen. A small business owner in Alabama named Isaac Winkles and the National Small Business United (NSBU) association challenged the new law as outside the scope of the federal government’s authority and prevailed in Court. Judge Burke wrote in his opinion, “..the wisdom of a policy is no guarantee of its constitutionality.” The federal government is appealing the ruling, and this case will likely be fast-tracked to the U.S. Supreme Court because of its wide-ranging application to millions of small business owners.

What Does This Mean For LLC and Corporation Owners Right Now?

FinCEN, the federal government agency where ownership and management of an LLC or corporation are reported via a beneficial owner information report (BOI), issued a notice stating that the Court’s ruling only applies to the plaintiffs of the case. This includes Mr. Winkless and any LLC or corporation that is a member of the NSBU. For the millions of other small business owners, you must still file the BOI report. For new businesses set up in 2024, you have 90 days from the date the LLC or corporation was established to file your BOI report to FinCEN. For businesses established prior to 2024, owners have until Jan 1, 2025, to be compliant. Failure to file the BOI report may result in significant financial penalties and up to 2 years in jail.

If you are setting up a new LLC or corporation, you need to comply within 90 days. You will not be able to wait for the outcome of the appeals process, as this case likely won’t be fully decided until the fall at the earliest.

For entities set up before 2024, some business owners may decide to wait rather than file their BOI report now. While my advice would be to file anyway, as I believe the federal government will prevail in its appeal at the end of the day, some business owners may decide to wait to file until the appeal is decided. There will likely be a mad rush of BOI reports towards the end of 2024 as business owners try to comply with the ruling by the deadline.

What is the BOI Report Filing?

Our law firm, KKOS Lawyers, and our company compliance company, Main Street Business Services, have filed hundreds of BOI reports for our clients. The BOI report is essentially a disclosure document whereby every LLC or corporation must disclose anyone who owns 25% or more of the company and any person who has substantial control over the company (e.g., the president, manager, CEO). Each person’s name, address, and date of birth must be disclosed, and a copy of a government-issued photo ID must also be provided for each person. The BOI reports are not available to the public and can only be disclosed by FinCEN to federal or state law enforcement agencies. For a more comprehensive overview of the BOI filing requirement please check out my video here and view our corporate transparency guide here.