Federal Court Blocks Beneficial Ownership Reporting Requirements for Small Businesses

A federal judge has issued a nationwide preliminary injunctionpreliminary injunctionA preliminary injunction is a temporary court order issued before a case is finally decided that requires a party to take or stop an action while the litigation continues. Federal courts generally consider the likelihood of success, irreparable harm, the balance of equities, and the public interest before granting one.Read more → 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.