CTA: What This Texas Court Ruling Means for Businesses

Corporate Transparency Act: What This Texas Court Ruling Means for Businesses

I wasn’t planning to write another blog about the Corporate Transparency Act (CTA) in 2024. But, as they say, plans change—and here we are. The recent court ruling out of Texas, which places the CTA on hold nationwide, is a development no business owner should ignore. Let’s break it down.

What Is the Corporate Transparency Act?

The CTA, enacted to combat financial crimes like money laundering and terrorism financing, requires most U.S. businesses to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This law aims to increase transparency in business ownership, targeting anonymous shell companies often used for illegal activities.

Who Needs to Comply?
Businesses formed in the U.S. before January 1, 2024, had until January 1, 2025, to submit their Beneficial Ownership Information Reports (BOIR). Newly formed businesses were required to file within 90 days of their creation.

What’s Required?
The law mandates businesses to disclose details for each beneficial owner, including:

• Full legal name
• Date of birth
• Residential address
• An identifying number (e.g., driver’s license or passport)

Noncompliance carries significant penalties, including fines and potential criminal liability.

The Texas Court Ruling: A Temporary Pause

On December 3, 2024, a Texas federal judge issued a preliminary injunction in the case of Texas Top Cop Shop, Inc., et al. v. Garland, halting enforcement of the CTA nationwide. The ruling found that the law likely exceeds Congress’s constitutional authority, citing concerns about federal overreach and potential violations of the Tenth Amendment.

Judge Mazzant characterized the CTA as "quasi-Orwellian," expressing unease about the federal government’s expanded role in collecting sensitive data from small businesses. The injunction effectively pauses the CTA’s reporting requirements across the U.S., just weeks before the first compliance deadline.

What Does This Mean for Your Business?

For now, businesses are not required to file their BOIRs with FinCEN. However, this pause could be temporary, so businesses should:

1. Pause Compliance Activities—But Not Completely: While reporting is currently on
   hold, take this time to ensure all necessary information is organized and readily available.
2. Work Through Analyses and Forms: Begin (or continue) reviewing your company’s structure to identify beneficial owners. Prepare draft forms to ensure readiness in case the injunction is stayed, lifted, or overturned.
3. Stay Informed: The U.S. Treasury Department has announced plans to appeal the decision. Businesses should keep an eye on updates to avoid scrambling if reporting obligations resume.

By proactively preparing now, you’ll reduce the risk of noncompliance should the legal landscape change.

A Word of Caution

While the court’s decision provides temporary relief, the CTA remains an important compliance issue for businesses. Staying organized and prepared is the best course of action.

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Disclaimer: This blog is for informational purposes only and does not constitute legal advice. For now, and with the injunction in force, reporting companies are not required to report beneficial ownership information to FinCEN, but should continue to work through their analyses and forms to be prepared to comply with the CTA by the filing deadline in case the nationwide injunction is stayed, lifted, or otherwise made ineffective. Consult a qualified attorney for guidance tailored to your business.