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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

Michigan Law Firm - Warner Norcross + Judd LLP

On December 3, 2024, in Texas Top Cop Shop, Inc. v. Garland, the U.S. District Court for the Eastern District of Texas entered a preliminary injunction that prevents enforcement of the Corporate Transparency Act (CTA) and its related beneficial ownership reporting requirements on a nationwide basis. The CTA task force at Warner has reviewed the opinion and its effect on companies who are preparing to file their beneficial ownership reports by the January 1, 2025, deadline.

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The CTA cannot be enforced for now. But it’s not dead yet.

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A preliminary injunction does not finally resolve a case; rather, it temporarily prevents specified activity pending full consideration of the merits of the case. In Texas Top Cop Shop, the court concluded that the CTA is likely unconstitutional because it exceeded the power of Congress. Unlike in a <a href="https://www.wnj.com/updates/federal-court-found-corporate-transparency-act-unconstitutional-what-does-this-mean-for-entities-preparing-to-comply/">parallel challenge arising out of Alabama</a>, in which the court limited the scope of its injunction to the plaintiffs in that case, the Texas court enjoined the government from enforcing the CTA nationwide against all reporting companies — meaning no reporting company in the country need comply with the CTA while the injunction is in place.

The Texas court’s order almost certainly is not the last word before the end of the year. We expect the government to seek an immediate stay of the preliminary injunction in the U.S. Court of Appeals for the Fifth Circuit, which could be resolved in a matter of days. The Court of Appeals could stay the injunction pending appeal in its entirety (effectively setting the injunction aside and making the CTA enforceable again); stay the injunction in part, such as by limiting its effect to the plaintiffs in the lawsuit (reviving reporting obligations for some but not all reporting companies); or decline to stay the injunction. If the government is unsuccessful in the Court of Appeals, the government may seek the same relief in the U.S. Supreme Court, which also is likely to act quickly.

Prepare for the CTA to become enforceable again before the reporting deadline.

The bottom line: There is no guarantee that the Texas court’s preliminary injunction will remain in effect through the end of the year. If the Fifth Circuit or Supreme Court sets aside the injunction as litigation continues, the CTA would be enforceable again. Such a decision could arrive with very little time for clients to prepare their beneficial ownership information (BOI) reports before the deadline for submitting those reports (January 1, 2025, for entities that existed before 2024, or 90 days after the date of formation for entities created during 2024).

Clients may choose to hold off on actually submitting their beneficial ownership information reports while we await further clarity as to the future of this reporting requirement. But we strongly recommend that clients continue the work needed to prepare BOI reports by their reporting deadline. Clients should complete the information gathering and ownership analysis needed to have BOI reports prepared and ready to file in the event that the legal landscape changes and filing is again required. That could occur with very little time to prepare reports before the deadline for submitting them. For more details on the information you’ll need to report, please see our prior <a href="https://www.wnj.com/updates/are-you-ready-to-submit-your-corporate-transparency-act-reports-by-year-end/">eAlert</a>.

Warner’s CTA task force is continuously monitoring developments and will provide updates as the litigation continues. In the meantime, we are available to assist clients with CTA reporting obligations. If you have questions about this litigation or how the CTA impacts your company, reach out to Corinne Curtis, Loren Andrulis, Phil Haywood, Charlie Quigg or your Warner attorney.

Partner

Loren Andrulis

Associate

Philip T. “Phil” Haywood

Charles R. “Charlie” Quigg

Corinne N. Sprague Curtis

Appellate and Supreme Court Practice

Corporate

Litigation and Dispute Resolution

Preliminary Injunction Temporarily Prevents CTA Enforcement Nationwide — But Likely is Not the Last Word Before December 31

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Preliminary Injunction Temporarily Prevents CTA Enforcement Nationwide — But Likely is Not the Last Word Before December 31

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