On December 3, 2024, a federal court in Texas issued a nationwide preliminary injunction, halting the enforcement of the Corporate Transparency Act (CTA). This decision temporarily suspends the Act’s reporting requirements, which were set to affect millions of U.S. businesses starting January 1, 2025.
For more information on CTA and its potential impact on your organization, contact our Partner, Fiona Xu, at contact@consultils.com
What is the CTA?
The CTA was designed to improve transparency in business ownership and curb financial crimes such as money laundering. It required entities to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), targeting individuals who own or control at least 25% of a business.
It was set to impact 32.5 million businesses, with existing companies required to file reports by January 1, 2025, and new companies within 90 days of formation in 2024 (30 days starting in 2025). Critics highlighted privacy risks, high compliance costs, and the burden on small businesses.
Why Did the Court Block the CTA?
The federal court identified constitutional and practical concerns with the CTA, leading to the nationwide injunction, including:
Constitutional Rights: The court found the Act infringed on privacy protections and free association rights by requiring disclosure of sensitive ownership information.
Federal Overreach: The Act was seen as encroaching on powers traditionally reserved for state governments, disrupting the balance of state and federal authority.
Economic Burden: Compliance was projected to cost businesses $22 billion in the first year, posing significant challenges for smaller entities.
As a result, the court concluded that enforcing the CTA would likely cause irreparable harm to businesses and ruled that its implementation was unconstitutional at this stage.
The court’s ruling applies across the United States, effectively pausing all CTA requirements, including:
● No BOI Reporting Required: Businesses are not required to file BOI reports at this time.
● No Penalties for Noncompliance: The federal government cannot enforce penalties for failing to meet the CTA’s deadlines while the injunction is in place.
What Happens Next?
The CTA’s fate remains uncertain as legal and administrative challenges continue:
Appeals Process: The government is expected to appeal to the Fifth Circuit Court of Appeals and potentially the Supreme Court.
Administrative Review: The incoming administration may revise the Act’s implementation, delay enforcement, or collaborate with Congress to address its flaws.
These developments will determine whether businesses must eventually comply with the CTA.
Steps for Businesses
While the enforcement of CTA is paused, businesses should take steps to remain prepared for potential reinstatement.
● No Immediate Action Required: Enforcement of the CTA is paused, and businesses are not obligated to update or correct previously submitted reports.
● Remain Prepared: Gather the necessary information to comply promptly if the injunction is lifted.
● Monitor Changes: Keep track of legal updates to ensure readiness for any potential reinstatement of reporting requirements.
For more information on CTA and its potential impact on your organization, contact our Partner, Fiona Xu, at contact@consultils.com
Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.
Fiona Xu, Esq. is the Partner and Head of Transactions of ILS.
She has extensive experience supporting global and high-growth technology companies on compliance and business needs. Her practice focuses on regulatory compliance across different sectors, with a focus on sector-specific regulations for artificial intelligence (AI) and medical devices. She supports multinational corporations in establishing and maintaining U.S. operations, managing legal and compliance challenges in various areas such as Privacy, Export Control, and CFIUS issues.
Email: contact@consultils.com | Phone: 626-344-8949
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