Understanding the Corporate Transparency Act (CTA) And Its Current Legal Status

The Corporate Transparency Act (CTA) was introduced to combat financial crimes like money laundering by creating a federal database of corporate ownership. However, the law has faced significant legal challenges, leading to uncertainty about its enforcement. Businesses in Wisconsin should pay close attention to these developments, and Bosshard Parke is here to help you stay prepared. Here’s what businesses should know about the legal status of the Corporate Transparency Act.

What Is the Corporate Transparency Act?

The CTA requires certain companies to disclose Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This federal registry is designed to provide transparency, helping law enforcement identify illegal financial activity.

Who Must Report Under the CTA?

• Reporting companies: Small businesses, LLCs, and corporations are generally required to report ownership information.
• Exempt entities: Large companies with more than 20 employees and $5 million in revenue, publicly traded companies, and certain nonprofits are exempt.

Required Information

Businesses must report:

• Names, addresses, and birthdates of beneficial owners.
• Government-issued ID numbers (e.g., driver’s license, passport).

Corporate Transparency Act Legal Status

The CTA’s implementation has been halted due to a series of legal challenges, with the most recent developments creating significant uncertainty for reporting companies.

Timeline Of Legal Developments

1. Nationwide Injunction Issued:
   On Dec. 3, 2024, a federal district court in Texas issued a nationwide injunction, halting the CTA’s enforcement.
2. Emergency Stay Granted, Then Vacated:
   On Dec. 23, 2024, the Fifth Circuit Court of Appeals granted an emergency stay, briefly lifting the injunction. However, just three days later, on Dec. 26, 2024, the same court’s merits panel vacated the stay, reinstating the nationwide injunction.
3. Why the Injunction Was Reinstated:
   In a brief order, the Fifth Circuit merits panel explained that the stay was vacated to “preserve the constitutional status quo” while considering the parties’ substantive arguments.
4. Next Steps for the Government:
   The U.S. government is expected to seek an emergency stay from the Supreme Court. If granted, the CTA’s reporting requirements would be reinstated. Otherwise, the injunction will remain in place until the Fifth Circuit Court rules on the government’s appeal, with a decision expected in mid-2025.

What This Means For Businesses

For now, no reporting obligations exist under the CTA. However, businesses should remain vigilant and prepare for potential compliance if the injunction is lifted. Businesses that have already submitted their report do not need to take action.

Key Considerations For Wisconsin Businesses

1. Temporary Relief
   While the CTA is currently not enforceable, the situation may change quickly depending on the outcome of appeals.
2. Preparing for Compliance
   Businesses should gather beneficial ownership information now to ensure readiness if reporting obligations are reinstated.
3. Monitoring Deadlines
   Precedent from FinCEN suggests that filing deadlines may be extended to account for injunction periods. Businesses should monitor developments closely to avoid missing future deadlines.
4. Consulting Legal Counsel
   Given the CTA’s complexity and evolving status, businesses should work with an attorney to understand how the law might affect them.

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. For personalized guidance, consult an attorney at Bosshard Parke in La Crosse and Sparta.