Texas District Court Ruling Implements Nationwide Preliminary Injunction Suspending Enforcement of Corporate Transparency Act

Following a ruling in the US District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. v. Garland, a nationwide preliminary injunction has been put in place suspending the enforcement of the Corporate Transparency Act (“CTA”). 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024). As a result, the Financial Crimes Enforcement Network (“FinCEN”) clarified that at this time companies subject to beneficial ownership information (“BOI”) reporting requirements under the CTA are not required to file such information, but may do so on a voluntary basis. Further, while FinCEN did not provide an extension of previous deadlines in light of the injunction, reporting companies will not be subject to liability if they fail to do so while the injunction is in place. We generally recommend that reporting companies gather the requisite materials to be prepared to submit new filings, but that they pause on submitting such a filing and closely monitor developments in this area to ensure compliance.

We last reported on the CTA on March 18, 2024, where the US District Court for the Northern District of Alabama ruled that the CTA was unconstitutional and FinCEN subsequently refrained from enforcing the CTA against the specific plaintiffs in that case. Today, there are several pending litigations challenging the constitutionality of the CTA, and we note that there may be other significant rulings that impact the applicability of the Texas Court’s order.

Overview of Previous BOI Reporting Requirements and Deadlines

Reporting requirements depend on the date a company was created or registered to do business. A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file the report, whereas a company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial report. Lastly, companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their respective ownership reports. While reporting companies include both domestic and foreign entities, there are 23 types of entities that are exempt from the reporting requirements. Of these exemptions, most pertain to entities that are already subject to similar federally instituted ownership reporting requirements. For a full list of exceptions and other details please refer to section C.2. in the following FinCEN FAQ.

We note that there are no fees associated with submitting the report, nor are CPA’s or other professional service providers required to file. BOI reporting is also not an annual requirement, it only needs to be submitted once and updated as relevant. For a more in depth overview of BOI reporting requirements, please refer to our previous blog post on January 10, 2024. Further information to file a report, such as the official form and relevant exemptions, can be found on the BOI portal.

How to Proceed in Light of this Ruling

Although there are several pending challenges to CTA requirements on a national scale, we generally recommend that reporting companies gather the relevant materials to file, but pause on submitting new filings to the FinCEN database. However, we note that FinCEN is accepting BOI reports on a voluntary basis at this time, and that depending on specific circumstances, it may be in a reporting companies interest to proceed with filing.

From our reading of the decision, the Texas Court’s order reflects an expectation that a final resolution on the merits will exceed the current January 1, 2025 reporting deadline. Regardless, companies should continue to monitor changes in ownership and implement the appropriate procedures to ensure compliance with reporting standards and relevant filing deadlines. FinCEN guidance on this ruling has not provided any extension to the previous deadlines, and if the preliminary injunction were to be overturned or limited on appeal earlier than January 1, 2025, reporting companies may still be required to meet the original deadline to be in compliance.

For additional details on the BOI reporting requirements please refer to the following FinCEN FAQ.

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