SHERMAN, Texas — On Dec. 3, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide temporary injunction that blocks the enforcement of the Beneficial Ownership Reporting (BOI) requirements of the federal Corporate Transparency Act (CTA).
This law, which affects almost all drycleaning company owners, requires most companies to file what is called a BOI report with a federal agency called the Financial Crimes Enforcement Network (FinCEN) by Jan. 1, 2025. Businesses having to file under the CTA include every corporation and LLC, as well as any other entity that is created by the filing of a document with the Secretary of State or similar office.
The legislation was designed to combat money laundering and other financial crimes, FinCEN states, and would have required personal information to be submitted by “any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interest of a reporting company.”
In Texas Top Cop Shop v Garland et al. Mazzant ruled in favor of the National Federation Of Independent Business (NFIB) and several small businesses and non-profits that filed suit against the requirement.
In his order, Mazzant wrote that the law was unconstitutional, stating, “Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law—a matter our federalist system has left almost exclusively to the several States. Second, the CTA ends a feature of corporate formation as designed by various States—anonymity. For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government.”
The ruling was lauded by the NFIB. In their lawsuit filed in May, the organization argued that “the CTA exceeds Congress’s authority over the states, it improperly compels speech and burdens associations, it unconstitutionally compels disclosure of private information, and the reporting rule is not in accordance with the law.”
“This ruling is a huge victory for small businesses nationwide, and just in time,” says Beth Milito, Executive Director of NFIB’s Small Business Legal Center. “For many Main Street small businesses, they were a mere four weeks away from the deadline to file their information in accordance with the CTA. The BOI reporting requirements are a harmful invasion of small business owners’ privacy and a misuse of their valuable time. Thankfully, the Court agreed and granted a preliminary injunction, giving small business owners a reprieve from this burdensome rule.”
The NFIB notes that, for now, the January 1, 2025, reporting deadline is delayed until a higher court holds otherwise.
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