Corporate Transparency Act – Beneficial Ownership Interests Report. You need to register.
Congress has decided that you need to register your corporations, partnership, LLCs, Series, LLCs, LLPs, Partnerships, etc. with the Financial Crimes Enforcement Network (“FinCEN”), Department of Treasury, a bureau of the U.S. Department of the Treasury. See, https://boiefiling.fincen.gov
The Law that requires this is known as the "Federal Corporate Transparency Act" (“CTA”) and it went into effect on January 1, 2024. Congress enacted it for the purposes of combatting money laundering, tax evasion, and hiding the proceeds of other financial crimes.
Top level:
Legal entities like corporations, LLCs, partnerships and certain trusts that are created by filing any document with a State or Commonwealth’s Secretary of State (or equivalent) who are not "exempt" and were in existence before January 1, 2024 or were created thereafter have to file an initial report and thereafter continuing reports about who their owners are and who management is, under penalty of perjury with FinCEN and civil penalties and criminal fines and the possibility of criminal prosecution.
If you are a "large operating company" then you are exempt. A “large operating company” is defined as a legal entity that -
A. has a physical operating presence in the US,
B. has more than 20 full-time employees (people working on average at least 30 hours per week) in the US, and,
C. has reported more than $5MM in gross income on its federal income tax return for the previous year (i.e., it has actually filed a tax return or an information return with the IRS for 2023).
If your legal entity was created BEFORE Jan 1, 2024, then you have to file an initial report by Jan 1, 2025. If you created a legal entity on or AFTER Jan 1, 2024, then you have to file an initial report within 90 days of the date that the entity was created. Do not wait until December when every other corporation that has procrastinated decides to file.
This is an ONGOING obligation on the part of reporting companies. If there is any change in or to your "equity ownership," "beneficial ownership," "substantial control," or “management” at any time during 2024 and thereafter, then you'll need to report that within 30 days after a change. Beneficial ownership and substantial control are each defined terms.
The ownership threshold for persons whose names, SSN, address, and driver's license info (including a photo) need to be provided is 25% whether equity, stock, voting rights, capital or profits interest, scrips, warrants, options, DECS, etc. But being in management as an officer or director requires reporting as does the right to effectively control the legal entity by way of contract rights such the right to appoint directors, etc.
This would also apply to any other legal entity you might own or control unless it is inactive which is of course a defined term.
The good news is that for legal entities that were set up BEFORE Jan 1, 2024, they will not have to file the FinCEN report until January 1, 2025 unless they filed or registered in 2024 and then have had a change in their status during 2024 in which case they have to amend their filing within 30 days.
Penalties. There are penalties for failure to comply:
Civil penalty of $500 per day for each day that the violation continues; and,
Criminal penalties of imprisonment for up to 2 years and fines up to $10,000.
There is currently no filing fee to file. FinCEN BOI reporting started on January 1, 2024.
Talk to your attorney about compliance before the deadline(s).
Business Divorces
Business divorces are entirely unpleasant and expensive. But like “collaborative divorce” where everyone agrees to be civil and not scream too much there is the possibility of resolving a departure or expulsion from a legal entity without too much drama or legal fees. It is possible.
It is this attorney’s substantial experience that a business divorce in most mature businesses where the parties are in a mood for a fight can easily spend hundreds of thousands of dollars fighting in court. They could have gotten the same result earlier in time if the temperature had been dialed down with fewer legal costs.
You have to decide: do you want an interloper to decide who gets what or do you want to negotiate hard and control the result?
For sure, there may be embezzlement or at least diversion of funds or pass thru of questionable expenses. That is for you the client to decide. But once you raise embezzlement there is no going back.
There are two principal options possible: negotiations and immediate litigation if one of the shareholder, partners, or LLC members is damaging the business or freezing out another shareholder, partner or LLC member.
But consider first trying to work the dispute out and cutting the best deal that you can taking into consideration the cost of litigating and the disruption to your life and business operation.
Talk to a lawyer who has knowledge of corporate law, taxes, and commercial contracts first before running off to the courthouse.
Negotiation vs. Litigation
Attorneys who believe that negotiation and settlement of disputes are result-oriented people who prefer controlling the result as much as possible even if it means reducing the likelihood or the amount of a lawsuit judgment. They are principally risk averse and do not like 3rd parties to determine the result.
Litigators, in turn, prefer the process of getting to court and the possibility of a big payout. They love motions and pleadings and fights about evidence and depositions, discovery and the courtroom. They are in love with litigating as a thing in itself. The honest ones will try to tell you to cut the best deal possible. Litigation is time-consuming, expensive, and unpredictable. The risk takers found at the craps table in Vegas will tell you to always sue.
Nowadays most common pleas judges come from backgrounds at the Prosecutor’s or Public Defender’s Offices. Their experience is in criminal and maybe domestic relations matter. They frequently do not have any experience in corporate, securities, intellectual property, UCC, or commercial contract matters. In those cases they try to be fair – as they are required to do – by going very, very slowly and learning the subject area of the law. So, you had better be patient.
Frequently you have to take chances in life. And sometimes you need Tough Dutch Uncle Advice and take the deal. If you have a real legal injury and damages in excess of a $1M then litigation may be the best path. If not, work with what you have.
Only the best lawsuits go to trial unless one party is a real risk taker or overestimates its case and wants to roll the dice. I would estimate 75% of those fail. Miserably. And the losing side is then liable for court costs and expenses, or worse like a counterclaim for the other side’s damages.
But the purpose of litigation is not just to win but to get paid or to get some sort of equitable relief like a Permanent Injunction. Ask yourself: why am I suing? Can I get the same or better deal by negotiating?
Filing a lawsuit and getting to trial and getting a jury verdict or judge ruling takes lots of time. Lawyers will purposely delay, delay and delay. Yours is not the only case. Remember that.
In most commercial (contract or corporate) cases lawyers want a substantial retainer upfront that is filled back up each time it goes to zero.
Consider this:
If you sue someone and they counter-sue, you are stuck in the lawsuit. You can dismiss your case but the other party’s case lives on. You go from offense to defense in a New York minute. You are now stuck unless you settle with the defendant.
If the court rules in your favor and you get a judgment that does not mean that you get paid by the loser defendant.
The court gives the plaintiff (hopefully you) the right to seize assets from the defendant as of legal right – so long as this is done through civil process and without disturbing the peace.
The Court does NOT ORDER THE DEFENDANT to pay you. YOU the winner have to go and find the defendant’s assets and seize them by using the Sheriff to do so. This costs money by way of legal fees and Sheriff expenses.
You take the judgment, and after the appeal time has run and the defendant has not appealed, you can immediately get the Sheriff to go after the assets of the defendant if you can find those assets.
(Frequently, clever defendants move their assets around or change their ownership right before a lawsuit is filed or just after. Now you have to prove to the court that this was done to defraud judgment creditors.)
The collected assets go to the Clerk of Courts who collects them and then, after applying a fee, pays you the balance. You have to do that for each asset or account until the debt is paid.
However, the defendant still has exemption rights under state debtors law – you cannot seize so much of their assets that they become penniless and go on public support.
The defendant also has the right to file for bankruptcy. In that case, you are merely an unsecured general creditor (unless the judgment results from an intentional tort). You might get a nickel for every dollar the defendant owes you. If you are lucky.
Defendant’s having no money are uncollectible. Never sue people with no money or assets. It might feel good in the moment but when you get your legal bill it will taste like bitter herbs.
Civil judgments last 7 years in many states and then, in some states, they can be renewed. In others . . . you need to check what happens.
Sometimes it is worthwhile to roll the dice and go to court.
Other times, it is better to take an ok deal versus a great but contested result.
Do you have 1 – 3 years of your life and lots of time, sweat and money to put into your dispute? Go to court. If not, cut the best deal that you can and move on in your life.
Contingency cases in tort cases (like, car accidents, medical malpractice, etc.) cases are easier to prove than those in commercial settings where liability is more uncertain and economic damages are more questionable.
Your lawyer has to estimate the likelihood of winning, the amount of any judgment, and the likelihood of getting paid.
If the defendant does not have any money or if the judgment will effectively take all of their money, expect them to file bankruptcy. In that case, you the winner, will get not very much for your time, efforts or money.