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Corporate Transparency Act Compliance When Buying a Business

Author By Todd McMurtryPosted on

Purchasing a business triggers the duty to comply with the Corporate Transparency Act (CTA), a federal law mandating the disclosure of beneficial owners of certain U.S. entities to prevent illicit activities such as money laundering and fraud. Understanding the intricacies of the CTA and ensuring adherence is vital, not only to facilitate a smooth transaction but also to avoid significant legal repercussions.

The CTA requires entities such as corporations and limited liability companies to report detailed information about their beneficial owners, namely, those who own 25 percent or more of the entity or have significant control over it. Beneficial ownership information (“BOI”) must be filed with the Financial Crimes Enforcement Network (FinCEN). It includes the owners’ full legal names, birthdates, addresses and unique identifying numbers. BOI must be updated within 30 days of any change in ownership.

Non-compliance with the CTA can lead to severe penalties. If a business fails to provide accurate or updated information about its beneficial owners, it can face fines of up to $500 per day until the violation is corrected, reaching potentially substantial sums. Moreover, willful failure to report the required information or deliberately providing false or fraudulent information can result in criminal penalties. These include fines of up to $10,000 and/or imprisonment for up to two years. 

Importantly, these penalties can apply to violations that occurred before the acquisition. To mitigate those risks, prospective buyers should take several precautionary steps:

  • Due diligence — Conduct a review of the target company’s compliance history with the CTA. This includes verifying that all necessary filings are up to date and accurate. Engage with legal professionals who can scrutinize the documentation and history of compliance is advisable.
  • Integration plan — Develop a plan to integrate CTA compliance into the ongoing operations of the business post-acquisition. This should include procedures for regularly updating beneficial ownership information and monitoring compliance.
  • Training and awareness — Implement training programs for key personnel in the acquired company to ensure they understand the importance of CTA compliance and the procedures for maintaining it.
  • Establish compliance protocols — Set up internal controls and compliance protocols to regularly review and verify beneficial ownership information. This proactive approach can help in identifying and rectifying any potential discrepancies before they result in violations.

Consulting with a business law firm can provide you with assurance that all aspects of CTA compliance are addressed and can help you protect yourself from liabilities associated with any pre-existing violations.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

 

How to Plan Effectively for a Business Divorce

Author By Todd McMurtryPosted on

A “business divorce” refers to the change in ownership or dissolution of a closely held business, which can be as complex and contentious as a marital divorce. This term encompasses a range of scenarios, from one partner buying out another to the complete unwinding of a company’s operations. 

Before undertaking such a drastic action, owners must consider several critical factors to ensure the business divorce process is handled with minimal disruption to the company and its assets. Here is an overview:

  • Take stock of the reasons and goals — The reasons could range from personal conflicts between owners to divergent visions for the company’s future. It’s also important for all parties to articulate their goals for the divorce, whether it’s a desire for independent operation, financial settlement or strategic realignment of the business.
  • Assess legal and financial implications — Owners should review any existing partnership agreements, bylaws or shareholder agreements that dictate the process for resolving disputes and exiting the business. These documents often outline buy-sell agreements, valuation processes and other critical procedures. Absent such agreements, state laws will govern the dissolution process, which might not align with the owners’ personal or business interests.
  • Undertake a valuation of the business — Determining the value of the business is a contentious aspect of many business divorces. Accurate valuation is essential for fair asset distribution. Owners should consider hiring independent appraisers to provide a valuation that all parties can agree on. This avoids further disputes and assure partners they are receiving their rightful share.
  • Measure the impact on stakeholders — A business divorce can affect a wide range of stakeholders, including employees, customers, suppliers and creditors. Owners should consider how the divorce will impact these groups and plan accordingly. Maintaining transparency with stakeholders during the divorce can mitigate negative impacts and maintain business continuity.
  • Consider negotiation and conflict resolution — Ideally, a business divorce should be resolved through negotiation rather than litigation. This can save time, reduce costs and preserve relationships to the extent possible. However, it requires compromise and understanding from all parties involved. Where negotiation fails, mediation or arbitration might be viable alternatives, offering a non-adversarial approach to settlement of key issues.

Given the complexities involved, it is advisable for each party to seek counsel from a business divorce attorney who can offer comprehensive services, making sure that valuations are done fairly, that all assets and liabilities are accounted for and that all governmental rules are complied with.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.