Ruling Prohibits Enforcement of Corporate Transparency Act

On December 3, 2024, a federal district court in Texas issued a sweeping ruling that prohibits the federal government from enforcing the Corporate Transparency Act (“CTA”) anywhere in the United States.  The CTA, which went into effect on January 1 of this year, required many privately held companies to report to the federal government certain information about the companies themselves, the individuals that own or exercise control over the companies, and the individuals involved in forming or registering the companies to do business in the United States.  While the compliance deadline for companies first created during 2024 was tied to the date on which each individual company was created, the uniform deadline for companies formed before this year was set to fall on January 1, 2025, only a few weeks from the date of the ruling.

The court concluded that the CTA was likely unconstitutional.  In the court’s view, the act likely exceeded the federal government’s constitutional powers by imposing requirements based on a company’s mere existence—its “natural state of being”—rather than purporting to regulate any affirmative actions taken by the company.  On that basis, the court entered an order that (i) restricts the CTA and its associated regulations from being enforced at least while the Texas-based lawsuit is ongoing and (ii) specifically provides that companies subject to the act “need not comply with the CTA’s January 1, 2025, . . . reporting deadline” until the court orders otherwise. 

This ruling is not the first word on the CTA’s constitutionality.  Several other federal courts have been asked to address whether the act exceeds the federal government’s power—with mixed results.  However, this is the first and only decision to have nationwide effect.  Here, the court expressly concluded that “[a] nationwide injunction is appropriate,” thus preventing the government from enforcing the CTA against any companies anywhere in the country.

It is also not likely to be the last word.  For starters, the court entered only a preliminary ruling.  The lawsuit will proceed, and, in theory, the court could revisit its preliminary decision somewhere down the line.  Alternatively, the federal government may choose to immediately appeal the court’s decision—first to the U.S. Court of Appeals for the Fifth Circuit and then, potentially, to the U.S. Supreme Court.  Until a different decision is issued by one of these courts, however, the government will be precluded from taking steps to enforce the CTA.

Woods Fuller is continuing to study the immediate and downstream effects of the court’s ruling.  If you have any questions, you should contact your Woods Fuller attorney.