On December 3 2024, the U.S. District Court for the Eastern District of Texas (Sherman Division) issued a preliminary injunction in the case of Texas Top Cop Shop, Inc. et al. vs. Garland. This temporary injunction, in favor of the  plaintiff, found that the Corporate Transparency Act (CTA) “appears likely unconstitutional” and that as a result “. . . the CTA and its Implementing Regulations must be enjoined.” This decision has a profound impact on reporting requirements for businesses of all sizes and across all industries via the temporary suspension of the CTA’s beneficial ownership information (BOI) reporting rule. It is also a complex and potentially confusing issue for business owners, so a brief explanation of the legislation in question, the ruling, and suggested courses of action follow.

The CTA and BOI

A brief explanation of both the CTA and its accompanying BOI may help address some of the potential confusion coming from this injunction. While there are of course complexities and nuances to each, the basics are not especially difficult to understand.

Initially enacted in 2021, the CTA is intended to enhance and enforce transparency in corporate financial transactions in order to “prevent corrupt and other actors from laundering illicit funds through anonymous companies in the United States.”  The goal of the legislation was to unmask and disrupt shell corporations by making vital information available to law enforcement and regulatory agencies. The BOI reporting rule took its current form in 2022, when Congress clarified who must file a BOI report and when along with detailing what information the reports must contain. Any corporation or LLC incorporated in the US via a filing with the secretary of state or equivalent office in a state or tribal government may need to file a BOI report, as may any foreign company or corporation registered to conduct business in the United States. Exemptions exist to accommodate specific circumstances, and reports are filed online via https://www.fincen.gov/boi. Reports are required to contain relatively detailed information about the ownership, incorporation, and some of the business practices of the filing entity.

The Texas Top Cop Shop Injunction and What it Means

The details of the case Texas Top Cop Shop vs Garland will not be included here as they are not relevant to the immediate concerns of businesses and business owners. As mentioned above, the injunction found that the CTA and its BOI reporting requirement may in fact be unconstitutional–the injunction describes them as “unprecedented” and a “drastic two-fold departure from history”. As a result, the court ordered a temporary injunction suspending enforcement of the CTA and the BOI requirement. Effectively, no business is required to file a BOI report until the preliminary injunction is removed. 

It is vital for businesses to remember that this is not a permanent injunction. It is likely that the federal government will file an appeal and that the matter will return to the courtroom. It is entirely possible that the temporary injunction may be removed and that filing BOI reports may resume, requiring businesses to file them retroactively. With that in mind, we offer the following suggestions to businesses and business owners who are feeling the effects of this injunction:

• Keep a close eye on the news regarding this case and the injunction. The issue of Texas Top Cop Shop vs Garland will almost certainly face an appeal. The ultimate outcome is difficult to predict, but it will shape the future of both the CTA and the BOI requirements. 
• Maintain regulatory compliance with the CTA and BOI, and draft BOI reports as needed. If the injunction is removed or reversed in a future court decision, businesses will be liable for the reports they would have filed in the interim. In order to spare yourself and your business future difficulties, continue to maintain internal compliance and reporting as though the CTA and BOI requirements were still in effect. The online portal may or may not accept filings at this time, so internal record-keeping is an important step in preparing for what comes next.
• Discuss the matter with a CPA or with qualified legal counsel. This is a complex decision regarding an equally complex piece of legislation; going it alone is inadvisable. Talk over your options and what may be required of you and your business with a CPA or with an experienced business attorney.

The future of the CTA is uncertain, but that uncertainty should not cause undue stress or worry for business owners. As with all business decisions, high-quality legal advice from an experienced legal team may make all the difference for the future of your business. Bagchi Law works to ensure that our clients receive the best possible legal guidance for all aspects of their business lives. More than a law firm, Bagchi Law offers a comprehensive suite of legal, financial, and business solutions that work for you. If you’re concerned about the effects of the CTA/BOI injunction or any other business legal matter, contact us today to schedule a consultation.