On December 3, 2024, a Federal District Court in Texas delivered an opinion finding that the Corporate Transparency Act (CTA) and its implementing regulations are unconstitutional and issued a preliminary injunction with nationwide effect against enforcement of the beneficial ownership information reporting requirements of the Act and regulations.
The injunction is preliminary – the Court would not have issued it unless it thought the plaintiffs were likely to prevail in the end – but for now, compliance with the CTA is suspended. The question for clients who have already filed, are in the process of preparing filings or who have not yet begun is “What do we do now?” Here is what we think. What follows are general thoughts:
- First, for those who have already filed, we suggest doing nothing for now. However, bear in mind that under the regulations, any changes to the information provided also have to be reported. We think that this obligation is currently suspended and that it can be disregarded until and unless the CTA and the regulations on this point are reinstated, either by the judge in Texas or on appeal to the 5th Circuit Court of Appeals or the Supreme Court.
- Second, for those who are already preparing a filing, we suggest completing the information gathering process but not filing for now. If the injunction is lifted, the deadlines for filing may (but also might not) be extended to take into account the time during which the injunction was in effect.
- Third, for those who have not yet begun, we suggest beginning the information gathering process if the information in the particular case is complex, because there may not be a lot of time if the injunction is lifted. In simple cases where the information is readily available, monitoring developments in the case should be sufficient.
It is possible that if the injunction is lifted, the Court may require some remediation of some of the more burdensome requirements of the regulations and this would take time. In addition, Congress is under pressure to legislate a delay and possibly some substantive changes to the law. The new administration may also want to have its say when it comes into power on January 20. At this stage, neither we nor anyone else can predict if any of these developments will occur or how they may play out.
We will and you should watch for judicial developments in the case, which may come quickly. For example, we think that the Justice Department may move quite soon, even by the end of this week, to ask a higher court to lift the injunction.
The statements and opinions contained in this alert are for the general purpose of informing our clients about this important development and should not be relied on without discussing your particular facts and circumstances with us. For further information, please contact Kara Koerner or the partner with whom you regularly deal.
