In a preliminary victory for privately held companies, the United States District Court for the Eastern District of Texas, Sherman Division, has ruled that Congress lacks the power to essentially override state laws that permit nondisclosure of private company ownership as a feature of entity formation.[1] In a Memorandum Opinion and Order dated December 3, 2024, the district court held that the Corporate Transparency Act (CTA), which mandates disclosure of Beneficial Ownership Information (BOI) to the federal government, is likely unconstitutional.[2] The district court issued a preliminary injunction halting nationwide enforcement of the CTA and its implementing regulations, determining that private owners have the right to remain anonymous.
The constitutionality of the CTA and its implementing regulations is a matter of first impression in the Fifth Circuit. Stay tuned as this case makes its way to the Fifth Circuit Court of Appeals and eventually, the United States Supreme Court.
You can read Judge Mazzant’s entire Memorandum Opinion and Order here:
In the meantime, private companies should consider the following next steps:
1. Stay informed regarding future developments. The injunction issued by the district court is preliminary and subject to being overturned on appeal or if the federal government ultimately prevails on the merits. Similarly, the incoming Trump administration could direct a reassessment of the CTA’s implementing regulations.
2. Evaluate your company’s current compliance processes related to the CTA and FinCEN reporting requirements. Ensure that your company is prepared to comply in the event the preliminary injunction is lifted.
3. Communicate with your company’s legal advisor for guidance as it pertains to your company’s compliance obligations.
[1] See generally Memorandum Opinion and Order (Doc. 30), Tex. TOP COP Shop, Inc., et al. v. Garland, No. 4:24-CV-478, currently pending in the United States District Court for the Eastern District of Texas.
[2] Id., at p. 2.
