The Corporate Transparency Act: The Government Appeals Preliminary Injunction. What To Do Now? – Corporate and Company Law

The Corporate Transparency Act (CTA) requires all corporations,
limited liability companies, limited partnerships, and many other
entities created or registered to do business in any U.S. state to
file a beneficial ownership interest report (BOI Report) with the
U.S. Financial Crimes Enforcement Network (FinCEN). The BOI Report
includes the ultimate beneficial owners of the entity, along with
other information about the entity. Subject to the preliminary
injunction discussed below, companies and other entities created or
registered to do business in the United States before January 1,
2024, must file by January 1, 2025. Companies that were created or
first registering to do business in 2024 have 90 days to file, and
in 2025 and beyond have 30 days to file.

As previously reported a federal district
court in Texas has granted a preliminary injunction against the
enforcement of the CTA, staying the deadline for compliance. A
preliminary injunction maintains the status quo while the court
considers the merits of the case and issues a final ruling. The
government has already appealed the decision on the preliminary
injunction, which has come as a surprise to some because the
appellate court’s review of the injunction is based on a
heightened “abuse of discretion” standard. This may be an
effort by the government to speed up the process because the
questions before the court are primarily legal and not factual.

There is a possibility that the CTA will be invalidated. The
Fifth Circuit U.S. Court of Appeals has ruled unfavorably to the
government in other recent appeals, such as its invalidation of the
SEC’s corporate buyback rules and its private fund advisor
rules. If invalidated, it is unclear whether the new Administration
will be motivated to seek review by the Supreme Court.

Although the Texas court’s injunction might be reversed in
short order, it seems likely that there will be a delay of the
compliance deadlines. The government has acknowledged that the
current preliminary injunction has stayed any compliance
obligation, and it is unclear how long it will take for the appeal
to be briefed and for the appellate court to rule on the
injunction. The government’s acknowledgement of the preliminary
injunction did not provide express comfort that it will provide
ample time to comply if the injunction is reversed. However, as a
practical matter, it seems likely that it will provide additional
time to comply with the CTA as a large number of late filings and a
negative public reaction are things that the government will want
to avoid.

What should filers do now? Particularly if your filing would
include sensitive or confidential information, we recommend that
you delay the submission until there is a clear filing requirement.
Although the filed information does not become generally publicly
available, it will be available to federal agencies, such as the
IRS and the SEC, certain private financial institutions such as
banks and mutual funds (after obtaining your consent), certain
foreign governments, and (with court approval) state and local law
enforcement. If worried about overall timing, some filers may
decide to prepare the filing now, but wait to submit it until there
is a clear requirement.

The Corporate Transparency Act: The Government
Appeals Preliminary Injunction. What To Do Now?

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.