This is the third installment in our ongoing series of client alerts on the Corporate Transparency Act (the “CTA”).
Recap of CTA Requirements
As discussed in previous alerts, most U.S. entities formed by a Secretary of State filing, including corporations and limited liability companies, and most foreign entities registered to do business with a Secretary of State are required by the CTA to report certain personal information about their “beneficial owners” and “company applicants” to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). For most legal entities in existence (or, in the case of foreign entities, registered to do business) before 2024, initial reports are due by January 1, 2025, and updated reports are due within 30 days of certain changes to the reporting company or its beneficial owners. Failure to timely file, update, or correct a report with FinCEN may result in substantial civil and criminal penalties being asserted against the entity or certain individuals with respect to the entity.
Corporate Transparency Act Enjoined
On December 3, 2024, the U.S. District Court for the Eastern District of Texas determined that the CTA was likely unconstitutional and issued a preliminary injunction that enjoins the CTA and enforcement of the reporting rules under the CTA and stays the January 1, 2025, compliance deadline. The order states that “reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.” The injunction issued by the Eastern District of Texas applies nationwide.
Next Steps
The U.S. Department of Justice may appeal the preliminary injunction and may ask the appellate court to stay the preliminary injunction pending the appeal. If the appellate court stays the injunction pending the appeal, the January 1, 2025, compliance deadline for existing legal entities may stay in effect.
In light of this uncertainty, clients should continue to monitor CTA developments at this time and should be prepared to file the reports required by the CTA if the injunction is lifted. Although not legally required while the preliminary injunction remains in effect, clients may also consider making a voluntary filing.
