UPDATE: 12/27/24

Yesterday (December 26), the United States Court of Appeals for the 5^th Circuit vacated the stay of a preliminary injunction against enforcement of the Corporate Transparency Act that was entered by the Court’s motions panel on December 23. The Court stated it was taking this action to preserve the constitutional status quo while the Court considers the parties’ substantive arguments in an expedited appeal of the ruling by the United States District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. et.al. v. Merrick Garland, et.al., Case No. 4:24-CW-478, enjoining enforcement of the CTA. The Court of Appeals has also set the schedule for the substantive appeal, with the first brief due on February 7, 2025 and oral argument scheduled for March 25, 2025. A copy of this order is attached.

This new ruling once again means the CTA cannot be enforced by the government, and no filings under the CTA are required, including initial beneficial ownership information for entities formed prior to January 1, 2024. The government may appeal the Appeals Court’s ruling to the U.S. Supreme Court, although it is unknown whether they will do so or if the Supreme Court would hear such appeal.

Businesses may continue to file initial reports through FinCEN’s website at their discretion, the injunction does not preclude anyone from proceeding with beneficial ownership filings while the case continues.

Some businesses might choose to pause their filings while waiting for a resolution in the Court of Appeals, but businesses should strongly consider maintaining any existing preparations for beneficial ownership reporting. As we have seen, this is a fluid situation. A stay of the injunction could come at any time, and it is unknown how much additional time—if any—businesses will have to file a report if the injunction is lifted. Therefore, compiling information and readiness now will make it easier to comply with any sudden changes.

UPDATE: 12/24/24

On December 23, 2024, Enforcement of the Corporate Transparency Act (CTA) was reinstated by the United States Court of Appeals for the 5^th Circuit after it lifted a nationwide preliminary injunction. FinCEN immediately posted the following guidance on its website, which includes a beneficial ownership information filing extension until January 13, 2025 for entities created prior to January 1, 2024:

In light of a December 23, 2024, federal Court of Appeals decision, reporting companies, except as indicated below, are once again required to file beneficial ownership information with FinCEN. However, because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, they have extended the reporting deadline as follows:

• • • Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
    • Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
    • Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
    • Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
    • Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.

The court case that was the basis of the preliminary injunction, Texas Top Cop Shop, Inc. et.al. v. Merrick Garland, et.al., Case No. 4:24-CW-478, is still pending and the plaintiffs may appeal the lifting of the preliminary injunction, although it is unknown whether they will do so.

UPDATE: 12/23/24

The United States Court of Appeals for the 5^th Circuit, in Texas Top Cop Shop, Inc. et. al. v. Merrick Garland, et. al., Case No. 4:24-CV-478, granted the federal government’s motion to stay the nationwide injunction against enforcement of the Corporate Transparency Act (CTA) that was previously issued on December 3, 2024 by the United States District Court for the Eastern District of Texas, pending further appeal.  A copy of this order is attached.

By lifting the injunction, the Court of Appeals’ order reinstates enforcement of the CTA, including the December 31, 2024 filing deadline for all Reporting Companies created before 2024.  The plaintiffs may appeal this decision, although it is unknown whether they will do so.

UPDATE: 12/9/24

The United States District Court for the Eastern District of Texas, in Texas Top Cop Shop, Inc. et. al. v. Merrick Garland, et. al., Case No. 4:24-CV-478, issued a nationwide injunction barring enforcement of the Corporate Transparency Act (“CTA”) or its implementing regulations. Importantly, the order specifically stayed the CTA’s deadline of January 1, 2025 to report beneficial ownership information (“BOI”), pending a further order of the court.

As a reminder, the CTA, which went into effect January 1, 2024, requires each “reporting company” to file a report with the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) detailing information about that company and its beneficial ownership. The implementing regulations of the CTA provide that reporting companies in existence prior to January 1, 2024 must file their initial reports with FinCEN by January 1, 2025. Entities formed or registered to do business between January 1, 2024 and January 1, 2025 must file initial reports within 90 days of formation/registration, while entities formed/registered after January 1, 2025 must do so within 30 days of formation/registration.

Following the ruling and injunction by the Eastern District of Texas, these reporting requirements are temporarily no longer in effect.

It remains an open question what the long term result of this order will be, but the government may request a stay or file an appeal of the order in the near future.  If a stay succeeds, the previous December 31, 2024 reporting deadline may go back into effect, or the deadline could be delayed due to the injunction. Notably, a successful challenge to the injunction may require businesses to quickly fulfill their obligations under the CTA by filing an initial report if they have not done so already.

Businesses may continue to file initial reports through FinCEN’s website at their discretion; the injunction does not preclude anyone from proceeding with beneficial ownership filings while the case continues.

Many businesses may choose to pause their filings while waiting for a resolution in the Eastern District of Texas, but clients are advised to maintain any existing preparations for beneficial ownership reporting. A stay of the injunction may come at any time, even prior to the CTA’s initial reporting deadline, so clients will have an easier time complying with any sudden changes if their beneficial ownership information is readily available and compiled.

If you or your company have any questions regarding the CTA or the recent ruling, please consult with an attorney. Schwabe will continue to closely monitor the case in the Eastern District of Texas and any other legal developments regarding the CTA.

UPDATE: 12/3/2024

On December 3, 2024, the United States District Court for the Eastern District of Texas, in Texas Top Cop Shop, Inc. et. al. v. Merrick Garland, et. al., Case No. 4:24-CV-478, issued a nationwide injunction, barring enforcement of the Corporate Transparency Act or its implementing regulations. The court ruled that:

“the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”

The government may appeal this decision, although it is unknown whether it will do so. Read the Memorandum Opinion and Order »

PREVIOUS INFORMATION: 11/27/2024

Corporate Transparency Act 2024 Year-End – What You Should Know

The Corporate Transparency Act (“CTA”), which affects many small and medium-sized businesses across the United States, went into effect on January 1, 2024. For entities subject to the CTA, reports including information about the entity and its “beneficial owners” (the people who own or control the entity), must be filed with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). The question of whether an entity must report and who its “beneficial owners” are may require legal analysis and advice.

EVERY business entity created by or registered through the filing of a document with a U.S. state or tribal jurisdiction (including corporations, LLCs, LLPs, etc.) is considered a “reporting company” under the CTA and must file required reports UNLESS it is exempt. Non-exempt reporting companies must file the following reports with FinCEN within the required timeframes:

• Initial Beneficial Ownership (BOI) Report:
  • For entities formed before January 1, 2024: before January 1, 2025
  • For entities formed in 2024: within 90 calendar days of formation

• Updated Reports: Due within 30 days after the date of any change to any information previously reported to FinCEN (including change of address or personal information)
• Corrected Reports: Due within 30 calendar days after the date when the reporting company becomes aware or has reason to know of any inaccuracy in the information previously reported to FinCEN

Initial BOI reports submitted in accordance with the CTA must contain (1) information on the reporting company itself, (2) personal information about each of the beneficial owners of the reporting company, and (3) if applicable, personal information about the “company applicant” of the company. A beneficial owner is any individual who, directly or indirectly, owns or controls at least 25% of the ownership interests of, or exercises “substantial control” over the reporting company (regardless of any actual ownership of the legal entity). The factors used to determine who is a beneficial owner are complex and the determination may require legal analysis. The company applicant includes: (a) the individual who directly files the document that creates, or first registers, the reporting company; and (b) the individual who is primarily responsible for directing or controlling the filing (up to a maximum of two people).

Subject to the terms of a specific engagement, Schwabe can offer a variety of assistance related to the CTA. We will continue to work with clients to form new business entities, including the filing of the appropriate documents with the Secretary of State. We are happy to help you analyze whether an entity may be exempt from reporting, who the beneficial owners are, and provide other advice related to the CTA. We are also currently prepared to assist with the preparation and filing of initial reports to FinCEN. Schwabe has developed an internal working group which has been constantly monitoring and evaluating changes and new guidance related to the CTA, which can help keep clients up to date with the law’s requirements.

Please note, however, that apart from limited engagements related to the filing of initial reports, Schwabe will NOT collect any of the data which may need to be reported, file reports on behalf of clients (including all updated and corrected reports), store or be a repository for any beneficial ownership information, or track deadlines related to CTA reporting. It will remain your responsibility to file reports to FinCEN and otherwise comply with the CTA.

The BOI reporting page, additional resources and helpful guides related to the CTA can be found on FinCEN’s website, including BOI Frequently Asked Questions and Small Business Compliance Guide. Schwabe also has a detailed guide available on Schwabe’s website. If you have any questions related to the CTA or otherwise require legal advice related to the requirements outlined above, please contact a lawyer who is admitted to practice in your jurisdiction and practices in this area.

This article summarizes aspects of the law. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.