Understanding the Corporate Transparency Act (CTA): Impact, Legal Challenges, and What Small Businesses Need to Know

By Andrew Huber, Partner, Smith Pauley LLP

I.                    What is the CTA and Who Does it Effect?

The Corporate Transparency Act (CTA) was created to combat money laundering, fraud, and terrorism financing by increasing transparency around business ownership and negating opportunities for criminals to hide assets behind anonymous corporate structures. It requires small businesses to report their beneficial owners—individuals who directly or indirectly own or control at least 25% of a company—to the Financial Crimes Enforcement Network (FinCEN). It excludes publicly traded companies and other already heavily-regulated companies.

Opponents argue that it forces hardship on small businesses because minor changes, like a change in name or renewal of a driver’s license, need to be updated in the beneficial owners report or companies risk massive fines. Others dislike it because it requires companies to provide sensitive personal information.

II.                 Procedural History of Texas Top Cop Shop

The drama unfolding around the CTA revolves around a series of “pausing” and “unpausing” enforcement of the law the courts are doing as the case gets appealed. The big picture of why this is happening actually has nothing to do with how valid the CTA is and more to do with which court has the power to halt enforcement of a law nationwide. The Eastern District of Texas, one of Texas’s lowest federal courts, attempted to halt enforcement of the CTA nationwide. The Supreme Court is surmising that a district court doesn’t have that power. The decision of whether the CTA is valid is simply caught in the crossfire of this argument. Here is what has happened so far:

1.      December 5, 2024: The Eastern District of Texas halted enforcement of the CTA nationwide.

2.      December 23, 2024: The government appealed. The 5th Circuit motions panel, the panel of judges that decides preliminary motions matters before deciding the appeal, essentially “turned the law back on” and put CTA enforcement back in action in an emergency motion.

3.      December 26, 2024: The 5th Circuit merits panel, the panel of judges deciding the substantive legal issues of a case, changed this. The merits panel vacated, or set aside, the motions panel’s decision to enforce the CTA while it decided the facts of the case. It decided not to enforce the CTA while it decided the facts of the case.

4.      January 23, 2025: The Supreme Court stayed the injunction, or “turned the law back on.” The decision of this application for stay means that enforcement of the CTA can resume. Additionally, they also set some additional guidelines for what happens next:

a.      If the Supreme Court decides to take the case deciding if the CTA is valid, then the “stay terminates” upon judgment of the Supreme Court. This means that the law gets “turned off” again once the Supreme Court gives its official opinion. The injunction, or halting, of the CTA takes effect once the Supreme Court gives its official opinion.

b.     If the Supreme Court decides not to take the case deciding if the CTA is valid, then the “stay terminates” automatically. This means that the law gets “turned off” immediately after the Supreme Court decides not to take the case. The injunction, or halting, of the CTA takes effect once the Supreme Court declines to take the case.

However, since this is not complicated enough, there is another case, Smith v. U.S. Department of the Treasury, proceeding simultaneously. It follows a similar set of facts in that a district court, also in the Eastern District of Texas, also enacted a nationwide halt on the enforcement of the CTA. Because that case has not been appealed, the nationwide halt in enforcement is still in effect because of this case.

III.               Why Has No Clear Answer Come as a Result of This Case?

This is not a decision as to whether the CTA is legal. This is a decision deciding how to proceed procedurally with this case. We still have to wait for the lower courts to rule on the validity of the CTA.

IV.                 What Does This Mean for You? What Do You Do in the Meantime?

The Supreme Court has said that the CTA can be implemented right now, but not enforced. FinCEN’s official position is that 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, they add that reporting companies may continue to submit beneficial ownership information reports voluntarily. See https://fincen.gov/boi.

Disclaimer: nothing herein is intended to be used as specific legal advice for the reader. If you have any questions regarding the CTA and/or its implications, please contact your Smith Pauley attorney to discuss your particular matter.

Andrew is a partner with Smith Pauley. Andrew develops and implements estate and business plans that are customized for clients at all levels of wealth and stages of life using an interdisciplinary approach.  Andrew focuses on traditional estate plans (e.g. wills, trusts and powers of attorney) to more complex estate planning techniques such as wealth transfer planning, asset protection planning, and closely-held business succession planning.  He listens and learns about his client’s personal goals and assets to incorporate their wishes into an individualized plan that is both comprehensive and flexible.  Additionally, Andrew counsels clients through the estate and trust administration process.

In his corporate practice, Andrew provides strategic advice throughout the entire “life cycle” of the client’s business. He regularly advises clients regarding planning decisions such as business entity formation, corporate governance issues, stock sales, asset sales and mergers and acquisitions.