By: Cassie R. Dellwo

Earlier this week, the Eastern District of Texas preliminarily enjoined the enforcement of the Corporate Transparency Act (“CTA”) nationwide, as well as stayed the reporting deadline of January 1, 2025. Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., No. 4:24-CV-478 (E.D. Tex. filed Dec. 3, 2024). This relieves companies from the impending filing deadline for beneficial ownership report, at least temporarily. Id.

In summary, the court ruled:

·        The CTA, 31 U.S.C. § 5336, is enjoined

·        Enforcement of the reporting rule, 31 C.F.R. 1010.380, is enjoined

·        The compliance deadline is stayed

·        Neither the CTA nor the reporting rule may be enforced

The ruling will likely be appealed and in doing so the Department of Justice may also request the U.S. Court of Appeals for the Fifth Circuit (or possibly the U.S. Supreme Court) to suspend the injunction or limit its scope.  

The district court's preliminary ruling does not conclusively decide whether any aspect of the CTA is unconstitutional.  Instead, it provides that the CTA should not be enforced while the court challenge is pending because the court believes the plaintiffs are likely to succeed. The decision regarding law's constitutionality comes in later proceedings.

Even if the injunction remains in place, reporting companies are not prevented from filing if they choose.

Our advice for now to clients, family and friends is to prepare to file your beneficial ownership reports but not actually file while the Stay is in place.  If the preliminary injunction is not vacated, it is possible that the CTA will never go into effect.

You may took a look at the full Order here: https://www.kutakrock.com/-/media/files/news-and-publications/publications/2024/december/texas-top-cop-shop-inc-et-al-v-garland-et-al.pdf?rev=9c2bdac2cf814354b842a8773638ca7d&hash=936D26EAB55F9C529FB0C32A40BD5BE2