The United States Court of Appeals for the Fifth Circuit ruled that the Corporate Transparency Act (“CTA”) is once again being put on hold as the court assesses its constitutional validity. The CTA is a law that is purposed for requiring businesses to disclose the identities of their beneficial owners. In doing so, shell companies will be required to disclose their true ownership or else will have to face financial penalties.
The CTA was developed in 2021 as a way to restrict the use of shell companies to conceal flows of illicit money. With the Act, eligible businesses were originally required to file information of any owner who either has a major influence on the reporting company’s decisions or operations, owns at least 25% of the company’s shares, or has a similar level of control over the company’s equity.
The CTA would apply to nearly 34 million businesses and would exclude many from the requirement including those businesses with more than $5 million in gross sales and more than 20 full-time employees. Businesses and owners that didn’t comply with the reporting rules could face fines of up to $591 a day. They could also face up to $10,000 in criminal fines and up to two years in prison.
The Fifth Circuit granted the injunction to put the law on hold in the case of Texas Top Cop Shop v. Garlandwhere Texas Top argued that to have such a rule in place would be to unconstitutionally invade small-business owners and associations. The court said that it has paused enforcement of the reporting requirement in order to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.”
The Financial Crimes Enforcement Network clarified the court’s ruling by putting out of the following statement: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
Before the Fifth Cicuit’s ruling, FincCEN announced that it has extended the deadline to file to January 13thhowever due to the court’s ruling, it remains clear that such a deadline will not be enforced at that time. “While it is not known how long the injunction will remain in effect, the case is calendared for oral argument en banc on March 25, 2025, so we expect that the injunction will be effective at least through March,” Daniel Stipano, a partner at law firm Davis Polk & Wardwell, wrote in an email.
FinCEN said that it still believes that the law is constitutional and will continue to pursue an appeal. As a result, the rule may ultimately be placed into effect which will require companies to gather information of its owners. Therefore, while business owners may be in favor of invalidating the CTA, it may make sense to continue to gather ownership information. 
Jacob Horowitz is a contributing editor at Compliance Chief 360°