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Corporate Transparency Act Beneficial Owner Reporting Halted
The U.S. District Court for the Eastern District of Texas has issued a preliminary injunction nationwide against the enforcement of the Corporate Transparency Act (“CTA”), questioning its constitutionality and finding the law to be likely outside Congress’s power. The injunction was set forth by Judge Amos L. Mazzant III in Texas Top Cop Shop v. Garland et al. (case 4:24-cv-00478 December 3, 2024).
Effective January 1, 2024, the CTA was set to require certain companies that qualify as a “reporting company,” which was most companies in the U.S., to report the names and other personal information of its “beneficial owners” and “company applicants” to the Department of the Treasury’s Financial Crimes Enforcement Network pursuant to a beneficial ownership information report (“BOI Report”). Companies that were formed prior to December 31, 2023 had until January 1, 2025 to file their initial BOI Report. Companies that were formed on and after January 1, 2024, were to file their initial BOI Report within 90 days, which resulted in many new companies already submitting their initial BOI Report.
This ruling is unlikely to be the last word on the CTA’s enforceability. The decision is limited to a preliminary injunction, leaving the door open for the Court to revisit it in the future. However, the anticipated next step is an appeal by the federal government to the United States Court of Appeals for the Fifth Circuit, with the potential to ultimately reach the United States Supreme Court. Unless and until a court overturns the Court’s injunction in Texas Top Cop Shop, companies will not be required to meet the CTA’s reporting obligations.
If you have already filed your BOI Report, there is nothing for you to do. If you planned on filing your BOI Report prior to January 1, 2025, this ruling permits you to wait and not file anything for now. Keep a look out for future updates from the Business Law Department at Gawthrop Greenwood as this progresses.
Attorney Gordon W. Prince is a member of the Business Law Department at Gawthrop Greenwood, PC, where he focuses his practice on business and corporate law, contracts, financing and secured transactions. He was named to Best Lawyers®: Ones to Watch, Super Lawyers Rising Star, as well as Top Lawyers in Main Line Today and the Daily Local News. For more information, contact Gordon at gprince@gawthrop.com or 610-696-8225.
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