Preliminary Injunction Halts Corporate Transparency Act Enforcement: What You Need to Know

On December 3, 2024, a United States district court in the Eastern District of Texas preliminarily enjoined the enforcement of the Corporate Transparency Act (“CTA”) in its entirety nationwide, and also specifically stayed the reporting deadline of January 1, 2025 for reporting companies formed or registered to do business in the U.S. before January 1, 2024.¹

In our view, the US Department of Justice is likely to appeal this injunction in the coming days. The government may also ask the U.S. Court of Appeals for the Fifth Circuit (or, potentially, the U.S. Supreme Court) to grant an immediate stay of the injunction, or to narrow the application of the ruling to just the plaintiffs in the case and companies that are members of the organizational plaintiff, the National Federation of Independent Business, Inc.

We would expect a ruling on any stay request to come in December 2024, but a decision on the government’s likely appeal will take longer. The nationwide injunction is premised on the district court’s view that the plaintiffs are likely to succeed on a “facial” constitutional challenge to the CTA. A facial challenge requires the plaintiffs to meet a relatively high burden in order to succeed, and it is therefore possible that even if the appeals court finds the statute to be constitutionally flawed, it may not be willing to enjoin the entirety of the statute, throughout the country, at this preliminary stage.

The district court’s preliminary ruling does not definitively decide whether any aspect of the CTA is unconstitutional—only that the CTA should not be enforced while the court challenge is pending because the challengers are likely to succeed. Any final decision on the law’s constitutionality would come in later proceedings, although it is possible for the Fifth Circuit’s decision in the government’s appeal of the injunction to address the constitutional issue more definitively.

While we understand that clients may choose to pause filings in light of the ruling, we recommend that clients do not abandon preparations for eventual compliance. If an appeal is filed and the injunction is stayed or narrowed, clients should ensure they will be in a position to complete their remaining filings on what may be a tight timeline. The January 1, 2025 deadline for reporting companies formed or registered to do business in the U.S. before January 1, 2024, is the aspect of the CTA that is most likely to be postponed nationwide because it comes from a regulation whose effective date the court has now postponed. But a stay could undo that postponement, and a stay order could come at any time, even close to the deadline. If the government seeks a stay, it will likely provide more information about how it will seek to apply the deadlines if a stay is denied.

Note that even if a stay is denied and the injunction remains in place, reporting companies are not precluded from proceeding with their filings if they choose, to avoid future uncertainty.

^[1] See Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-478 (E.D. Tex.).

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.