Corporations

FinCEN Issues Update on Beneficial Ownership Information Reports

December 10, 2024 | Morgan B. Brading

Time-for-Legal-services-160137293_725x483-1-300x200 As we discussed in our prior update, a federal court in Texas has issued a preliminary injunction against the Corporate Transparency Act (CTA) reporting requirement, the Beneficial Ownership Information Report (BOIR). (You may recall that the CTA requires companies created before 2024 to file BOIRs before January 1, 2025; new companies formed in 2024 to file within 90 days of their creation; and new companies formed after 2024 to file within 30 days of their creation.)

The Financial Crimes Enforcement Network (FinCEN) has issued a statement that all reports during the preliminary injunction are considered “voluntary” and there will be no penalty for reporting companies who fail to file during that period. In their statement, FinCEN maintains that they believe the CTA is constitutional and vital in protecting the United States and its citizens from financial and other crimes.

What does this statement mean, if anything, for your small business?

Companies Need Not File Beneficial Ownership Information Reports – at least for now

December 9, 2024 | Morgan B. Brading

Gold-Gavel-photo-credit-by-pixaby-300x165 The Corporate Transparency Act (CTA) requires most small business corporations and limited liability companies to file Beneficial Ownership Information Reports (BOI reports or BOIRs) with the Financial Crimes Enforcement Network (FinCEN), a part of the United States Department of Treasury. The purpose of the reports is to give law enforcement information regarding the people who own or control companies that may not otherwise be available to them, primarily for the purpose of investigating money laundering and other financial crimes. For companies that were formed before January 1, 2024, BOIRs are due by January 1, 2025.

At least they were before this week. On December 3, the United States District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. v. Garland (civil action number 4:24-CV-478) ruled that the CTA is likely unconstitutional and issued a nationwide preliminary injunction prohibiting the enforcement of the BOIR requirement. In doing so, the court wrote, “[R]eporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”

For several reasons, this is not the last word on the CTA. First, the Government has already appealed the decision to the U.S. Court of Appeals for the Fifth Circuit, which could set aside the preliminary injunction.

Basics of Business Valuation: A Guide for Business Owners in Indiana

October 1, 2024 | Michael R. Smith

iStock-1504303841_optimized-1-300x188 Determining the value of a small business is a critical step for various purposes, including selling the business, merging with another company, or resolving shareholder disputes. Business valuation involves assessing the economic value of a company, and several methods can be used to achieve this. Business valuation is both an art and a science. A proper valuation requires a trained expert, and they are not cheap. The valuation of a small business can run from a few thousand dollars to several tens of thousands of dollars.

Even though a proper appraisal is the wheelhouse of experts, small business owners should understand the fundamental principles. In this article, we’ll explore the basics to help you know what to expect from a valuation.

Why Business Valuation Matters

New Federal Reporting Requirement for Business Entities

August 29, 2024 | Michael R. Smith

suspicious-young-man-peeking-and-looking-at-camera-through-blinds-mistrust-concept-1124692168_726x484-300x200 You may have heard of a new reporting requirement that took effect on January 1, 2024, under the federal Corporate Transparency Act (or CTA). The report is called a Business Ownership Information Report (or BOIR). Most limited liability companies (LLCs), corporations, and other types of business entities are now required file a report with the Financial Crimes Information Center (or FinCEN) disclosing the names of the people who, directly or indirectly, own or control the business entity. A wealth of information regarding the CTA and BOIRs is available at the BOIR home page at https://www.FinCEN.gov/boi; the Small Entity Compliance Guide at https://www.FinCEN.gov/boi/small-entity-compliance-guide; and the list of frequently asked questions at https://www.FinCEN.gov/boi-faqs#A_1. Some basic information is provided below.

What is the purpose of the CTA?

The purpose of the Corporate Transparency Act, passed by Congress in 2021 on a bipartisan basis, is to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. The BOIR provides law enforcement with information that may not otherwise be readily available to them.

LLC Membership and Interest

July 6, 2020 | Michael R. Smith

The limited liability company is a relatively new form of business entity, with most state statutes adopted in the 1990s. In just a few years, they overtook the corporation as the most common structure for new businesses. A reason for the LLC’s popularity is that the it combines some of the most desirable aspects of corporations with some of the most desirable aspects of partnerships, but that blending of characteristics can also be a source of confusion. For example, LLCs work much like partnerships when it comes to ownership rights, but people often incorrectly assume ownership that LLC interest is analogous to corporate stock and that LLC membership is analogous to being a corporate shareholder.

The owners of corporations are called shareholders and their ownership rights are embodied in shares of stock, a form of intangible personal property comprising a bundle of rights, some economic and some non-economic. The principal economic right is the right to receive dividends (usually cash) from the corporation, and the principal non-economic right is the right to vote in an election of directors and other matters that may be submitted to a vote of the shareholders. Although there can be restrictions (typically set out in the company’s articles of incorporation or bylaws, or a contract among shareholders or between a shareholder and the corporation), stock is generally transferable from one person to another. A person who acquires stock (thus becoming a shareholder) receives both sets of rights, economic (dividends) and non-economic (voting). It makes no difference how the person acquires the stock –by purchase, by gift, by inheritance, as compensation to an employee, or by court order (in a divorce or otherwise); a person who owns stock holds both economic and non-economic rights.

Limited liability companies also have economic and non-economic rights. The principal economic right is the right to receive distributions (usually cash) from the company, and the principal non-economic right is the right to participate in the management of the company’s business and affairs. A crucial distinction between LLCs and corporations is that the economic and non-economic rights associated with LLCs are not bundled together in a single package the way those rights in a corporation are bundled together in stock.

Veil Piercing: Plaintiff Left With No Recourse, and That’s Okay

November 25, 2018 | Michael R. Smith

Suppose you sue a corporation or a limited liability company and win, but the defendant has no money to pay your award and no other assets you can execute against. Is that a factor that justifies piercing the veil to make the owners of the company pay your award? The Indiana Court of Appeals answered that question, and a couple of others related to veil piercing, in Country Contractors, Inc. v. A Westside Storage of Indianapolis, Inc.

Country Contractors was incorporated in 1983 as a seller of ready-mix concrete under the name Country Concrete, Inc. In the 1990’s the company expanded its business to include construction work and excavation. Over the years, Country Contractors owned a substantial amount of assets in the form of construction equipment that it leased to other contractors. In 2007 the corporation changed its name to Country Contractors, Inc. and amended its articles of incorporation to better reflect its expanded line of business. Its two shareholders served as the board of directors, but three other people were responsible for running the company from day to day — preparing bids, executing contracts, and supervising the work.

In 2007, Westside engaged Country Contractors to perform excavation and construction services for the price of $235,000. Country Contractors subcontracted much of the work, which began in 2008. The two owners were not involved in the negotiation or execution of the contract, nor did they supervise the work.

Indiana Business Entity Harmonization: Postscript

March 3, 2018 | Michael R. Smith

We previously discussed the Business Entity Harmonization Bill (Senate Enrolled Act 443 or P.L. 118-2017) passed last year by the General Assembly in the following posts:

Part I — an introduction.
Part II — a discussion of IC 23‑0.5, the Uniform Business Organizations Code.

Indiana Business Entity Harmonization: Part IV

January 3, 2018 | Michael R. Smith

[March 3, 2018. The General Assembly amended some of the provisions created the Business Entity Harmonization Bill, as discussed in a Postscript to this series.]

This is the last in four-part series. The first three parts are here: here, here, and here.

This Part IV describes some flaws of Senate Enrolled Act 443 that we ran across while writing the first three parts. We hope the General Assembly will address them, either in the 2018 session or another.

Indiana Business Entity Harmonization: Part III

January 2, 2018 | Michael R. Smith

[March 3, 2018. The General Assembly amended some of the provisions created the Business Entity Harmonization Bill, as discussed in a Postscript to this series.]

This is the third of a four-part series discussing the Business Entity Harmonization Bill passed by the Indiana General Assembly in 2017. The first two parts are here and here.

Senate Enrolled Act 443 creates, effective as of January 1, 2018, a new Article 0.6, the Uniform Business Organization Transactions Code, in Title 23 of the Indiana Code. In previous versions of the statute, provisions dealing with mergers, conversions, and domestications of business corporations, limited liability companies (LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and nonprofit corporations were scattered across several articles of Title 23. The Uniform Business Organization Transactions Code gathers most of them into one article that, in general, applies at least as broadly as each corresponding provision of the former statute, and in some cases more broadly. In addition, the new article provides for the acquisition of ownership interest (i.e., stock in a corporation or interest in a partnership or LLC) by another entity.

Indiana Business Entity Harmonization: Part II

January 1, 2018 | Michael R. Smith

[March 3, 2018. The General Assembly amended some of the provisions created the Business Entity Harmonization Bill, as discussed in a Postscript to this series.]

This is the second of a four-part series discussing the Business Entity Harmonization Bill passed by the Indiana General Assembly in 2017. An overview of the bill is provided in Part I.

Senate Enrolled Act 443 creates, effective as of January 1, 2018, a new Article 0.5 in Title 23 of the Indiana Code, the Uniform Business Organizations Code, that includes a number of provisions that apply to Indiana business corporations (including professional corporations and benefit corporations, but excluding insurance companies), limited liability companies (LLCs, including series LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and nonprofit corporations, eliminating a number of inconsistencies between similar provisions for different types of entities. The following discussion is a brief description of some of the more important provisions, drawing attention to new or substantially changed provisions.