Corporate Transparency Act on Hold: Key Implications for Businesses

On December 3, 2024, the U.S. District Court for the Eastern District of Texas (the “Court”) issued a nationwide preliminary injunction suspending enforcement of the Corporate Transparency Act (“CTA”) and its Beneficial Ownership Information (“BOI”) reporting rule. The injunction effectively suspends the requirement under the CTA for certain companies to disclose their BOI to the Financial Crimes Enforcement Network (“FinCEN”), a bureau within the U.S. Department of the Treasury, for an indefinite period of time and until such injunction is overturned by an appellate court with jurisdiction.

Court Reasoning

The Court’s decision to grant this injunction was based on the Court’s preliminary assessment that the CTA and its reporting rule are outside of the power granted to Congress under the U.S. Constitution and may violate other constitutional protections. In granting the injunction, the Court determined the injunction should apply nationwide, noting that the CTA and its reporting obligations apply to “approximately 32.6 million existing reporting companies” across the nation. The Court determined it could not provide meaningful relief to those affected without enjoining the CTA and reporting rule nationwide.

Next Steps

Companies subject to the CTA and their beneficial owners should continue to monitor FinCEN’s webpage for updates regarding compliance deadlines and enforceability of the CTA’s reporting requirements. Evaluating the next steps regarding compliance can depend on that particular company’s status in filing its initial FinCEN Beneficial Ownership Information Report (“BOIR”).

Businesses Filed with FinCEN

Pause on Compliance Efforts: The injunction currently halts enforcement of the CTA. While FinCEN may appeal, no immediate action is required at this stage.

Monitor Litigation and Administrative Updates: Stay updated on litigation outcomes and any policy shifts under the next administration.

Business Not Filed with FinCEN

Delay Filing: The nationwide injunction means that no business is currently required to comply with the CTA, but further guidance or appellate court decisions could reinstate the CTA’s enforceability.

Consult Legal Counsel: Businesses should collaborate with legal advisors to evaluate their exposure under the CTA if the injunction is lifted or enforcement resumes.

Prepare for Potential Compliance: If the injunction is overturned on appeal, businesses may need to act to meet reporting deadlines. Having compliance mechanisms in place will help mitigate risks.

Future Outlook

On December 5, 2024, FinCEN filed an appeal against the nationwide preliminary injunction of the CTA. The appeal challenges the Court’s decision that the CTA likely exceeds Congress' constitutional authority. The appellate court with jurisdiction is expected to move swiftly to either uphold the injunction, modify its scope, or overturn it, potentially reinstating the CTA's reporting requirements as of a new, future deadline. Given this uncertainty, we recommend that businesses remain prepared to comply with the CTA should the injunction be lifted. This includes gathering necessary BOI and staying informed about legal developments.

For further inquiries or questions, please contact Attorney Frank Portera at fportera@lavellelaw.com or (847) 705-7555.