On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction prohibiting the federal government from enforcing the Corporate Transparency Act (the “CTA”) nationwide (Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.)). The order specifically finds that “reporting companies need not comply with the CTA’s January 1, 2025, beneficial ownership reporting deadline.”

The CTA and its implementing regulations, which went into effect January 1, 2024, would require U.S. “reporting companies” to disclose beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network by January 1, 2025.

The court issued the preliminary injunction after determining that the CTA and its implementing regulations were “likely unconstitutional as outside of Congress’s power” under the Commerce Clause as Congress does not have the power to compel disclosure of corporate ownership information for law enforcement purposes. Judge Mazzant noted that simply because a company exists does not give Congress unlimited power to regulate it, particularly since the CTA does not directly regulate commerce, stating, “The fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects—especially through the CTA.”

It is important to note that the court’s injunction is preliminary and not a final decision. While the long-term future of the CTA is unknown and the court’s decision may be appealed, the immediate impact is that the CTA’s upcoming January 1, 2025 compliance and filing deadlines have been paused. We encourage clients to reach out to their Seward & Kissel contacts for further information on the CTA as new developments emerge.