by Jane Seiglar, MHC Government Relations Committee Co-Chair

A Texas federal court has temporarily blocked the implementation of the Corporate Transparency Act (CTA) nationwide. The decision comes less than a month before the January 1, 2025 deadline for millions of small businesses to comply with the new ownership reporting requirements.

On January 1, 2024, a sweeping new federal law went into effect that requires many small businesses, including farms, to disclose detailed information about their ownership and control. The CTA is intended to combat money laundering, financial fraud, and terrorist financing,  By requiring businesses to submit a report about their “beneficial owners,” i.e., those who own or control the business, the CTA creates a national database that law enforcement and financial institutions can use to distinguish legitimate businesses from those operating as “shell” companies. It has significant implications for a broad range of U.S. small businesses, including farms and agricultural operations.

The CTA applies to most U.S. businesses formally created as separate entities from the people who own and run them, including corporations, limited liability companies (LLCs), and similar entities. This includes both new businesses and those already in operation. There are some exemptions, including sole proprietorships, general partnerships, and nonprofits, as well as banks, insurance companies, and others believed to already be sufficiently regulated by state or federal government. Interestingly, large companies  – with more than twenty employees, five million dollars in gross revenue, and a physical office in the United States –  are also exempt.

There are significant penalties for failure to comply with the CTA, including:

  • Civil penalties of up to $591 per day for continued non-compliance.
  • Fines of up to $10,000.
  • Possible two-year imprisonment for willfully failing to report or for providing false information.

The Texas Federal District Court held that the CTA violates the Commerce Clause of the US Constitution. Per the court’s order, “…reporting companies need not comply with the CTA’s January 1, 2025, Beneficial Ownership Information reporting deadline pending further order of the Court.” The injunction ruling most likely will be appealed by the Government. A final resolution of both the injunction appeal and any trial on the merits could be many months down the road.

For more information about the CTA, see the Government Relations Report in the December 2024 The Equiery.