A federal judge has issued a nationwide preliminary injunction blocking enforcement of the Corporate Transparency Act (CTA), effectively halting new requirements for small businesses to report beneficial ownership information. The decision, handed down by Judge Amos L. Mazzant III of the Eastern District of Texas on Tuesday, December 3, relieves millions of small businesses from compliance with the January 1, 2025, deadline—at least for now.
The CTA, enacted to combat financial crimes often facilitated through shell companies, mandates that businesses report information about their beneficial owners—individuals who directly or indirectly control or benefit from the company. The requirements apply to corporations, limited liability companies, and other entities formed before January 1, 2024, with 20 or fewer employees. Businesses formed after this date had a 90-day window to file their reports.
The law has faced widespread criticism and confusion. Many small-business owners were unaware of the new rules, and those who knew often struggled to understand whether they were required to file and what information was needed. By July, only a fraction of the estimated 28 million covered small businesses had complied, according to a coalition of over 100 trade associations.
Judge Mazzant’s sweeping injunction goes beyond a prior ruling in Alabama earlier this year that limited enforcement of the CTA only to members of the National Small Business Association. The Texas ruling applies nationwide, suspending the reporting requirements for all affected businesses.
In his order, Judge Mazzant indicated that the plaintiffs challenging the CTA are likely to succeed in arguing that the law is unconstitutional.
The decision comes amid mounting concerns about the CTA’s rollout. Trade associations and members of Congress have highlighted low compliance rates and insufficient outreach to small-business owners. A coalition letter sent to the Senate Committee on Banking this summer noted that fewer than 10% of affected businesses had filed their beneficial ownership reports by mid-2024. The letter urged lawmakers to delay the requirements, citing the risk of steep fines and criminal penalties for noncompliance.
In response to these challenges, Senators Tim Scott (R-S.C.) and James Lankford (R-Okla.) proposed an amendment to the FY2025 National Defense Authorization Act to extend the compliance timeline and allow more time for education efforts.
The federal government has already filed a notice of appeal with the Fifth Circuit, seeking to overturn Judge Mazzant’s decision. If the appeals court rules in favor of the government, the injunction could be lifted, reinstating the reporting requirements. Until then, small-business owners have a temporary reprieve from the CTA’s obligations.
A U.S. appeals court has reinstated a nationwide injunction halting enforcement of the Corporate Transparency Act (CTA), a federal law requiring corporations and limited liability companies (LLCs) to disclose their beneficial owners to the U.S. Treasury Department. The move delays a compliance deadline for millions of businesses originally set for... Read More »
Last week, a federal judge in Texas backed a challenge to a nationwide ban on noncompete agreements, which restrict employees from joining rival firms. The ruling came shortly after the U.S. Supreme Court expanded judicial authority to challenge federal agencies' rule-making power, affecting the Federal Trade Commission’s (FTC) proposed ban... Read More »
In a significant setback for the Biden administration's efforts to combat financial crimes and increase corporate accountability, an Alabama federal district judge has ruled against the Treasury Department's mandate requiring small business owners to disclose their ownership details. The ruling, delivered late Friday by U.S. District Judge Liles C. Burke,... Read More »
The Corporate Transparency Act now requires shell companies to disclose ownership within a Federal database. Going forward, federal agencies will store proprietary information and share it with investors and banks. Democratic Representative Carolyn Maloney of New York first introduced the bill in 2010 as a means to combat money laundering.... Read More »
