A federal judge in Texas has issued a nationwide injunction halting the enforcement of a key provision of the 2021 Corporate Transparency Act, which requires corporate entities to disclose their beneficial owners to the U.S. Treasury Department. The ruling, issued on Tuesday by U.S. District Judge Amos Mazzant, sides with the National Federation of Independent Business (NFIB) and several small businesses and non-profits, who argued that the law is likely unconstitutional.
This decision marks the second time a court has struck down the Corporate Transparency Act (CTA). In March 2024, a federal judge in Alabama ruled the law unconstitutional in a separate case, though his injunction applied only to the specific parties involved. Judge Mazzant’s ruling, however, blocks the law’s enforcement nationwide, providing a significant reprieve to small businesses across the country.
In his opinion, Judge Mazzant described the law as an “unprecedented” attempt by the federal government to intervene in an area traditionally managed by the states. He argued that the CTA violates states’ rights by requiring corporations, formed under state laws, to disclose ownership information to a federal agency—thus removing the anonymity many states have historically allowed in business formation. Mazzant also contended that Congress lacked the constitutional authority under its commerce, tax, and foreign affairs powers to enact such a law, which he suggested could infringe upon states’ rights protected by the Tenth Amendment of the U.S. Constitution.
“The plaintiffs fear that this quasi-Orwellian statute undermines the dual system of government,” Mazzant wrote, emphasizing concerns over the federal government’s overreach.
The lawsuit, filed in May 2024 by the Center for Individual Rights, represents five small businesses and the NFIB, a trade group that advocates for small businesses with a membership of over 300,000. The plaintiffs argue that the CTA imposes undue burdens on small entities by requiring detailed disclosures to a federal agency, without clear justification or adequate protection for privacy.
The law, which was passed as part of a broader defense spending package in January 2021, requires corporations and limited liability companies (LLCs) to report their beneficial owners to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This measure was designed to curb money laundering by making it harder for criminals to anonymously set up shell companies to hide illicit activities.
The Justice Department declined to comment on the ruling, which blocks the law’s enforcement ahead of a January 1, 2025 deadline for companies to comply with its reporting requirements.
Caleb Kruckenberg, litigation director for the Center for Individual Rights, praised the decision, calling it a “reprieve” for small businesses. He added that the preliminary injunction would give the courts, and potentially the U.S. Supreme Court, time to address the constitutional concerns surrounding the law.
READ MORE: