On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction blocking the enforcement of the Corporate Transparency Act (CTA) nationwide.
The CTA became effective on January 1, 2024. The CTA requires any domestic entity that is or was formed by a filing with a Secretary of State (or similar state office or Indian Tribe), as well as any foreign entity that registers with any such office to do business in the United States, to provide certain information about its beneficial owners (typically officers and owners of at least 25% of outstanding ownership interests) to the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN), unless an exemption applies.
Under the CTA, entities in existence prior to 2024 must complete the reporting process before January 1, 2025. For entities formed during 2024, the time period for CTA reporting is 90 days from notice that the entity was formed.
The plaintiffs in the case, which include small business owners and the National Federation of Independent Business, argued that the CTA is unconstitutional and requested a preliminary injunction on enforcement of the law and related regulations. U.S. District Judge Amos Mazzant found that the plaintiffs were likely to succeed in their claim and stayed enforcement of the CTA nationwide for the duration of the litigation. The court order indicates that companies do not need to comply with the upcoming January 1, 2025, deadline for beneficial ownership report filings.
FinCEN has not yet provided any guidance on the nationwide injunction, and the Department of Justice has not indicated whether it will appeal the court order . CTA enforcement will resume if the injunction is overturned on appeal or if the Government ultimately prevails on the merits. Businesses subject to the CTA should be prepared to make beneficial ownership filings in the event the preliminary injunction is overturned or is otherwise no longer in effect.
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