The United States Court of Appeals for the Fifth Circuit has taken a significant step in the ongoing legal battle over the Corporate Transparency Act (CTA) and its corresponding Reporting Rule. In an order filed on December 26, 2024, the court vacated a previous stay on the preliminary injunction blocking the enforcement of the CTA, effectively preserving the injunction while the case is expedited for further review. This decision marks a pivotal moment in the fight over the CTA, which mandates strict beneficial ownership reporting requirements for millions of U.S. businesses.

What’s at Stake with the Corporate Transparency Act?

The CTA, part of the 2021 National Defense Authorization Act, requires businesses classified as “reporting companies” to disclose detailed beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The law is designed to combat money laundering and terrorism financing, but it has faced heavy criticism for its sweeping scope and the compliance burden it places on small businesses.

Key reporting requirements include:

• Full legal names and dates of birth of beneficial owners

• Current residential or business addresses

• Unique government identification numbers

Failure to comply with these requirements could result in steep fines and criminal penalties.

The Legal Timeline So Far

• December 3, 2024: The Eastern District of Texas issued a preliminary injunction, halting the enforcement of the CTA and the Reporting Rule.

• December 17, 2024: The district court denied the government’s request to stay the injunction.

• December 23, 2024: A motions panel of the Fifth Circuit granted the government’s emergency motion for a stay, temporarily reinstating the CTA enforcement.

• December 26, 2024: The Fifth Circuit vacated the stay, effectively restoring the injunction and halting enforcement of the CTA until further review.

What Does This Mean for Businesses?

For now, businesses subject to the CTA’s requirements can breathe a sigh of relief. The Fifth Circuit’s decision to vacate the stay means the preliminary injunction remains in effect, suspending the enforcement of the CTA and Reporting Rule. Here’s what professional business owners and C-suite executives need to consider:

1. Temporary Reprieve from Reporting Requirements
   Businesses classified as “reporting companies” are not required to comply with the CTA’s reporting obligations while the injunction is in place. This provides critical breathing room for companies to assess their compliance strategies.

2. Uncertainty Remains
   While the injunction is a win for plaintiffs, the case remains expedited and could ultimately reach the Supreme Court. Companies should stay vigilant and monitor developments closely.

3. Assess Your Reporting Obligations

• Review whether your business qualifies as a “reporting company” under the CTA.

• Identify beneficial owners and ensure your internal processes can meet the law’s requirements if enforcement is reinstated.

4. Prepare for Potential Compliance
   Even with the injunction, the push for greater corporate transparency is unlikely to fade. Businesses should take steps now to prepare for potential compliance if the injunction is lifted or similar regulations are introduced.

5. Engage in Advocacy
   The expedited appeal process provides an opportunity for businesses and industry groups to submit amicus briefs or engage in advocacy efforts to highlight the impact of the CTA on small businesses and professional organizations.

What’s Next?

The Fifth Circuit has expedited the appeal, with oral arguments scheduled before the next available panel. Businesses should be prepared for a swift resolution of this case, which will have significant implications for corporate governance and compliance obligations nationwide.

Bottom Line

The Fifth Circuit’s decision to vacate the stay on the preliminary injunction temporarily shields businesses from the Corporate Transparency Act’s reporting requirements. However, this relief is far from permanent. Business leaders should proactively assess their exposure, refine compliance practices, and stay informed about the evolving legal landscape.

Questions or Information?

For a copy of the Fifth Circuit’s order, questions about how this ruling impacts your business or assistance preparing for potential compliance, contact Troy Garris at troy@garrishorn.com.