SMALL BUSINESS ALERT: Enforcement of Corporate Transparency Act Blocked Nationwide

By Kayla M. Kuri

Kayla M. Kuri

In a significant decision, the U.S. District Court for the Eastern District of Texas granted an injunction yesterday to halt the enforcement of the Corporate Transparency Act (“CTA”) in the case

Texas Top Cop Shop, Inc., et al. v. Garland. Prior to this decision, many businesses were required to file a Beneficial Ownership Report with the Financial Crimes Enforcement Network (“FinCEN”) by December 31^st of this year. Here’s a breakdown of the court’s decision and its implications.

The Corporate Transparency Act
The CTA was enacted in 2021 with the aim of combating money laundering and other illegal activities by requiring “reporting companies” (typically small businesses) to disclose personal information regarding their “beneficial owners” to FinCEN. Noncompliance with the CTA risks significant civil and criminal penalties, including fines and imprisonment. Critics of the law argue that it places an undue burden on small businesses, which often lack the resources to manage such compliance requirements. This context sets the stage for the plaintiffs’ legal challenge and the court’s subsequent ruling.

The Court’s Ruling
The plaintiffs, including small businesses and advocacy organizations, argued that the CTA violated constitutional protections by compelling the disclosure of private information and exceeding federal authority. The court agreed, finding that the reporting requirements likely infringe upon the First Amendment’s protection against compelled speech and individuals’ privacy rights. The court also found that the CTA disproportionately burdens small businesses, compelling them to disclose sensitive personal information without sufficient justification or safeguards.

The court issued an injunction to prevent the CTA’s enforcement until the case is fully resolved. This decision temporarily relieves the December 31st deadline for affected businesses to comply with the law’s reporting requirements.

Implications
For small businesses, this ruling offers temporary reprieve from the burdensome compliance obligations imposed by the CTA. However, the broader question of the law’s constitutionality remains unresolved, and the case is likely to proceed to higher courts. If the court’s order is overturned on appeal or the federal government ultimately prevails on the merits, enforcement of the CTA is likely to resume.

While the injunction is a temporary victory for opponents of the CTA, the debate over corporate transparency and privacy is far from over. Businesses should remain informed about developments in this case as they may impact future compliance requirements. Phillips Murrah will closely monitor developments in this area.

For questions about the CTA, contact Kayla Kuri at kmkuri@phillipsmurrah.com or your regular Phillips Murrah representative.