For many businesses, ownership is quite clear. There is one proprietor of the company or partners identified by name on critical paperwork. Other times, the company may have an opaque structure.
Limited liability companies (LLCs) and corporations have business names that may not make it clear who actually owns and runs the company. Following the passage of the Corporate Transparency Act (CTA), federal laws have changed to require that some businesses file reports identifying those with a beneficial ownership interest (BOI).
When is BOI reporting necessary?
Litigation has changed the scope of the CTA
Initially, the CTA applied to any business operating in the United States with an opaque structure. However, there have been multiple lawsuits brought by a variety of parties to challenge the scope of the CTA.
There have been federal court rulings here in Texas and in other states that have changed the BOI reporting rules and the scope of the CTA. As of the most recent rules adopted by the Financial Crimes Enforcement Network (FinCEN), only foreign businesses operating in the United States must file BOI reports with FinCEN.
Companies expanding into the United States may have to identify anyone who owns at least a 25% stake in the company, as well as those who may have played a role in filing the paperwork to form the company. Domestic companies likely do not need to file BOI reports. The failure to file when required could lead to large fines and possibly even criminal prosecution.
Ensuring regulatory compliance during business formation and major business transactions is of the utmost importance for business leaders and owners. Those who partner with legal professionals can better understand the relevant compliance issues that may apply to their businesses and avoid the consequences of failing to follow federal regulations.
