The Corporate Transparency Act (“CTA”) has been put on pause at least for now following issuance of a nationwide preliminary injunction by a federal judge in Texas. Many lawsuits have been filed in multiple jurisdictions challenging the CTA, but the judge in this specific case explicitly stated that the temporary ruling is nationwide and effective immediately. This means that the Department of the Treasury cannot enforce the CTA or its reporting requirements in any state while the lawsuit is making its way through the trial process.
The plaintiffs in the Texas case include a group of small business owners and a trade association. The judge found that the Plaintiffs were likely to succeed on their claims that the CTA is unconstitutional because it violates the First Amendment by compelling speech as well as the Fourth Amendment’s right to privacy. The judge also observed that corporate regulation has traditionally been under the jurisdiction of the states, not the federal government.
The Department of the Treasury will likely appeal the injunction ruling, and a final decision on the constitutionality of the CTA will not be made until the myriad lawsuits make their way through the legal system. The issue will probably end up before the Supreme Court if Congress does not revise or rescind the CTA.
For now, existing companies that have already filed their Beneficial Ownership Information Report (“BOIR”) don’t need to take action. Companies that have not yet filed their BOIR or newly formed entities should gather the necessary information and be ready to file should the injunction be lifted. The situation could change on short notice, so it will be important to stay informed on new developments.
Best Law will continue to monitor the situation. If you have questions about CTA compliance or any other business law matters, contact us!