In 2021, Congress passed the Corporate Transparency Act, a federal law aimed at combating financial crime. The final rules published under this law required that almost all small businesses nationwide report identifying information relating to each party owning a beneficial share in the entity, also known as a Beneficial Ownership Information (BOI) report. Despite early challenges, these rules became effective on January 1, 2024. New businesses formed in the past year were subject to the requirement to file a BOI report with the Financial Crimes Enforcement Network of the United States Department of the Treasury (FinCEN). Businesses formed prior to 2024 had one year to file the report before January 1, 2025. Weiss Zarett’s review of this law is available here.
Now, mere weeks before the deadline for compliance for millions of companies, the entire Act has been temporarily put on hold, via a nationwide preliminary injunction barring any enforcement of the law pursuant to a ruling by the U.S. District Court in Texas. While there have several decisions relating to this law, some which upheld it and some which enjoined its enforcement only with regard to the specific claimants (and several which are still pending), this is the first decision to issue a decision effective nationwide. The ruling, Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex.), grants a temporary delay for compliance with the January 1, 2025 requirement. However, it does not provide a final decision as to the constitutionality of the law and its future.
A nationwide injunction, a mechanism used fairly infrequently by federal courts, is available in situations in which the court finds that there is enough basis for it to stop irreparably harmful conduct in furtherance of the public interest, and the situation is one in which plaintiffs will likely succeed on the merits of the challenged law. There have been approximately a hundred nationwide injunctions issued in the last four years, with the most recently publicized decision to stop the FTC’s ban on non-compete agreements garnering a lot of attention. In this case, the Texas Top Cop court decided that compliance with the Corporate Transparency Act could cause irreparable harm by causing the reveal of confidential information, and that the arguments against the law are likely to succeed because the federal government’s right to regulate the channels and instrumentalities of interstate commerce is not applicable to these new requirements for many companies (since they may not necessarily engage in interstate commerce or even be deemed a channel of commerce).
At this juncture, companies formed prior to 2024 that have not yet filed are released from any obligation to submit the BOI report before the end of this month, and cannot be penalized for failing to file. There have now been four federal circuits that have addressed the constitutionality of this law, resulting in a split between courts. Until the federal government appeals, or the injunction is reconsidered, the future of this law and its possible compliance requirements remain unknown. Regarding the approximately 8 million reports that have already been filed, remedy may only become available if the law is ever struck down as illegal.
If you have further questions about corporate compliance, you can reach out to the attorneys at Weiss Zarett Brofman Sonnenklar & Levy, P.C.
Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.
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