The new Corporate Transparency Act (CTA), requiring businesses to file a Beneficial Ownership Information (BOI) report identifying their key stakeholders and executives, has been suspended until further notice by a federal court order.
THE PAUSED LAW
The CTA, which was set to take effect on January 1, 2025, mandated most business entities to file a BOI report with the Department of the Treasury’s Financial Crimes Enforcement Network, disclosing information on their beneficial owners. Failure to comply might have resulted in heavy fines and imprisonment.
But on December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the CTA. As a result, business entities subject to the CTA do not need to file a BOI report. At least for now.
BACKGROUND
This is not the first time the CTA has been challenged, nor is it the first time that an injunction has been issued by a District Court. But it is the first time a nationwide injunction has been issued.
The Texas court held that that the CTA exceeds the U.S. Congress’s powers, under both the Commerce Clause and the Necessary and Proper Clause. It’s worth noting that the ruling did not address the Constitutionality of the law, which had been previously challenged.
The U.S. Department of Justice has filed a Notice of Appeal in response that will likely challenge the scope of the injunction. If the government is successful in its appeal, companies will likely be required to file a BOI on short notice.
WHAT BUSINESS OWNERS NEED TO DO
At the moment, the future of the Corporate Transparency Act is uncertain, given the current injunction and the incoming change in administration.
However, given the uncertainty and the approaching deadlines, businesses should still prepare their Beneficial Ownership Information report.
But for now, business owners can safely hold off on reporting until a further decision is made.
VMM will share timely updates as they become available.
Katherin Valdez-Lazo is an associate in Vishnick McGovern Milizio LLP’s Business and Transactional Law practice group, including the Mergers and Acquisitions and Commercial Real Estate practices. She can be reached at kvaldez-lazo@vmmlegal.com and 516.437.4385 x143.
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