Texas Federal Court Enjoins Government from Enforcing Corporate Transparency Act

On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction that enjoins the federal government from enforcing the Corporate Transparency Act (“CTA”). In the ruling, the Court questioned its constitutionality and its impact on small businesses.

The CTA went into effect on January 1, 2024 and requires “reporting companies” in the United States to disclose information about their beneficial owners, who are defined as individuals who ultimately own or control a company, to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

The Court’s order states that neither the CTA nor the implementing rules adopted by FinCEN may be enforced and that reporting companies need not comply with the CTA’s upcoming January 1, 2025 deadline for filing beneficial ownership reports.

The Court’s order, which is only a preliminary injunction and not a final decision, temporarily pauses enforcement of the CTA on a nationwide basis. However, enforcement could resume if the Court’s order is overturned on appeal or the Government ultimately prevails on the merits.

Considering this nationwide injunction and potential administrative changes, businesses must carefully evaluate their next steps regarding compliance with the CTA. Here’s a breakdown for two categories of businesses:

1. For Businesses That Have Filed with FinCEN:
   • Pause Compliance Efforts: The injunction currently halts enforcement of the CTA. While FinCEN may appeal, no immediate action is required at this stage.
   • Monitor Legal and Administrative Developments: Stay updated on litigation outcomes and any policy shifts under the next administration.
   • Protect Data: Ensure that any previously submitted beneficial ownership information is safeguarded against potential misuse.
2. For Businesses That Have 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 court decisions could reinstate the act’s enforceability.
   • Consult Legal Counsel: Businesses should work 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 quickly to meet reporting deadlines. Having compliance mechanisms in place will help mitigate risks.