On December 3, 2024, the United States District Court for the Eastern District of Texas (Sherman Division) issued a preliminary injunction putting a nationwide suspension on the enforcement of the Corporate Transparency Act (“CTA”).[1] The Court’s order comes less than a month before the CTA’s filing deadline for entities formed prior to 2024, which was anticipated to impact 32.5 million existing small businesses.
In its order, the Court described the CTA as a “flanking, quasi-Orwellian statute” and ruled that its reporting requirements are “likely unconstitutional for purposes of a preliminary injunction.” While the Court did not definitively rule the CTA unconstitutional, it determined that the Government is enjoined from enforcing the CTA and its reporting requirements.
We anticipate that the Department of Justice will immediately appeal this order, as it did in a similar case litigated in the Northern District of Alabama. In that case, the Alabama District Court limited its relief to the specific plaintiffs, and the Government promptly appealed the decision to the Eleventh Circuit Court of Appeals in March 2024.[2] The Eleventh Circuit Court of Appeals heard oral arguments in September 2024 but has not yet issued an opinion.
The preliminary injunction issued on December 3rd is expected to be appealed to the Fifth Circuit Court of Appeals. Notably, two other United States District Courts — one in Oregon and one in Virginia — have denied motions for a preliminary injunction, ruling that the CTA is likely constitutional. As of the publication of this Legal Update, FinCEN has not issued a statement regarding the December 3rd preliminary injunction and continues to accept Beneficial Ownership Information Report filings.
Reporting companies are urged to stay informed about further developments regarding the CTA. With multiple lawsuits challenging the CTA across the United States and conflicting court opinions, the ultimate legal status of the CTA remains unclear. Despite the immediate relief granted by the Texas Court’s preliminary injunction, reporting companies should, as a precautionary measure, continue analyzing their structures to determine beneficial owners and collect the necessary information. If the preliminary injunction is overturned or stayed, it is unknown how much time reporting companies would have to comply with the CTA. As such, it may be advisable to prepare all beneficial ownership information reports in advance for filing.
If you have any questions, please contact Matt Peurach, Matt Flower, or Lili Martin-Mashburn.
