Michigan Small Business Group Files Suit Challenging Corporate Transparency Act

By Jordan M. Small and David H. Freedman

On March 27, following similar litigation involving different litigants in Alabama, Ohio and Maine, a lawsuit was filed in the U.S. District Court for the Western District of Michigan by the Small Business Association of Michigan (“SBAM”) and others challenging the constitutionality of the Corporate Transparency Act (“CTA”). 

SBAM, which has over 32,000 small business members in Michigan, argues that the “proprietary and sensitive information” which the CTA requires to be disclosed violates the Fourth Amendment protections against unconstitutional search and seizure. 

Similar to the recent successful constitutional challenge by a similar trade group known as National Small Business Association in Alabama, which decision has been appealed by the government to the Eleventh Circuit Court of Appeals, SBAM’s lawsuit also argues that the CTA exceeds the authority of Congress to regulate commerce. As with other challenges to the CTA, the lawsuit also argues that the CTA is prohibitively vague in its requirement that those with “substantial control” must make disclosures with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). 

What does this mean for Michigan business owners?

Although many Michigan small business owners may be members of SBAM and could be exempt from reporting if the group’s challenge succeeds and the CTA is ruled unconstitutional, any such ruling will likely be narrowly applied to those business owners who were members of SBAM at the time the lawsuit was filed and will likely not have a wider reach.  

As a result of the pace at which the lawsuit may move through the federal court system and the likely narrow result if successful, Maddin Hauser is continuing to recommend that all non-exempt Reporting Companies subject to the CTA continue to timely adhere to the following deadlines and file its Beneficial Ownership Information Report (BOIR): 

• Existing domestic or foreign Reporting Companies formed before January 1, 2024: On or before January 1, 2025 (one year after the effective date of the CTA).  
• New domestic or foreign Reporting Companies formed during calendar year 2024: Within 90 days after its date of formation (i.e., the filing date of its Articles or Certificate). 
• New domestic or foreign Reporting Companies formed on or after January 1, 2025: Within 30 days after its date of formation (i.e., the filing date of its Articles or Certificate).

The Alabama challenge to the CTA, filed in November 2022, was not decided until March 2024. While the Western District of Michigan may proceed with the case on an accelerated timeline considering the upcoming deadlines, there is no guarantee that a ruling will be issued prior to when compliance with the CTA is required or that it will have any effect other than to the Plaintiffs in that matter. 

Regardless of whether the Michigan lawsuit is successful, the litigation over the CTA unfolding across the country increases the probability that a final decision about the Act’s constitutionality will be made by the Supreme Court. It is unlikely that the Michigan lawsuit will be the last lawsuit filed by a business group challenging the CTA, and the resulting decisions and appeals could lead to a circuit split which may necessitate the Supreme Court’s involvement.

We will continue to follow these developments and provide further updates as they are available on our CTA blog and other social media.