Court Stops the Presses: Enforcement of the CTA Has Been Enjoined Nationwide

As many entities are scrambling to complete and file their beneficial owner information report ("BOI") under the Corporate Transparency Act, ("CTA") before the January 1, 2025 deadline, the United States District Court for the Eastern District of Texas, Sherman division, in a case entitled Texas Top Cop Shop, Inc. et al. v. Merrick Garland, Attorney General of the United States, et al. has issued a nationwide preliminary injunction enjoining the CTA and enforcement of the reporting rule under the CTA and staying the compliance deadline. Specifically, the court ruled that "reporting companies need not comply with the CTA's January 1, 2025, BOI reporting deadline pending further order of the Court." The basis for the court's ruling is a determination that the CTA is likely unconstitutional.

What This Injunction Means for You

It should be noted that the injunction is a preliminary injunction and is subject to a further hearing and a final determination of the court. However, until such determination or a reversal on appeal (if the Department of Justice elects to appeal), the injunction will be applicable. The practical effect of this injunction is that, if an entity has not yet filed its BOI, it is no longer required to meet the January 1, 2025 deadline for such filing. Unlike the Alabama federal district court case (National Small Business United v. Yellen) from earlier this year, which found the CTA unconstitutional but limited enforcement to the plaintiffs in that case, this determination applies nationwide to all entities which may be reporting companies. We expect that FinCEN will issue some guidance concerning the injunction, but as of this writing no such guidance has been issued. We believe that, if an entity still wishes to file its BOI, it may do so, but entities may want to delay any such filing until there is further guidance. In the meantime, reporting companies should also consider continuing their work in preparing their BOI in order to comply with the CTA and be prepared to file if the preliminary injunction is lifted.

Is This The End of the CTA?

The current leadership at the Department of Justice will likely appeal the ruling and may ask for expedited review. However, there is very little likelihood of a further determination in the near term and there is some question as to whether the Department of Justice under the Trump administration would continue to pursue any such appeal. It is also possible that Congress could seek to enact legislation addressing the constitutional objections, but with a deregulatory environment expected under the Trump administration any such legislation is speculative at best.

It should be kept in mind that, even though this may be the end of the CTA, a number of states have adopted, or are considering adopting, their own transparency acts which in many ways have mimicked the CTA. We may see more states interested in pursuing such legislation if the CTA permanently ends.

For more information concerning the injunction or the CTA, please join Seyfarth's CTA Task Force for our December 12 webinar.