Preliminary Injunction Issued Enjoining the Corporate Transparency Act
December 5, 2024On December 3, 2024, the U.S. District Court for the Eastern District of Texas, in the case of Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., issued a nationwide preliminary injunction that enjoins the enforcement of the Corporate Transparency Act (“CTA”) and the enforcement of the Final Rule on Beneficial Ownership Information Reporting Requirements (the “Reporting Rule”) issued thereunder, and stayed the CTA’s compliance deadline of January 1, 2025. So long as the preliminary injunction is in place, reporting companies are not required to comply with the CTA.
The plaintiffs that brought the case are five entities, one individual, and the National Federation of Independent Business (“NFIB”), which has approximately 300,000 members consisting of small and independent businesses across the U.S. The defendants in the case are U.S. Attorney General Merrick Garland, Secretary of the Treasury Janet L. Yellen, the U.S. Department of the Treasury, The Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury (“FinCEN”), and Andrea Gacki, the Director of FinCEN.
Notably, the court did not rule that the CTA or the Reporting Rule is unconstitutional or otherwise violates any law. Rather, the court only found that the plaintiffs were entitled to a preliminary injunction, in part because the CTA and Reporting Rule are likely unconstitutional. In reaching its decision, the court explained that “[d]ue to the fast-approaching deadline for reporting companies to file BOI reports, the Court cannot render a meaningful decision on the merits before Plaintiffs suffer the very harm they seek to avoid.”
The effect of the preliminary injunction is to halt enforcement of the CTA and the Reporting Rule and pause the enforcement deadline until a final decision is made on the merits of the case (or the injunction is otherwise lifted or modified). As stated by the court, so long as the preliminary injunction is in place, “[n]either [the CTA or the Reporting Rule] may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
Companies should closely monitor this case and related challenges to the CTA. Further legal actions might maintain, lift, or modify the preliminary injunction issued by the court, potentially reinstating the CTA’s compliance requirements (with no assurance there will be an extended period in which to come into compliance). There is also a possibility that a decision on the merits could be reached on the validity of the CTA and the Reporting Rule. Given this uncertainty, it would be prudent for companies to complete their analysis of whether they are reporting companies under the CTA, whether an exemption applies, and, if the company is a reporting company and no exemption applies, to complete their analysis of their obligations under the CTA, identify their beneficial owners, and gather beneficial ownership information so that they are prepared to comply with the CTA if the preliminary injunction is lifted or modified or a decision validating the CTA is reached and compliance is required thereafter.
Should you have any questions about your obligations with respect to the CTA, please contact one of your lawyers at Lewis Rice or any of the authors of this client alert.
