Corporate Transparency Act (CTA) Compliance Guide for Business Owners – Key Details and Deadline Approaching

Corporate Transparency Act (CTA) Compliance Guide for Business Owners – Key Details and Deadline Approaching

If you own or control an LLC or corporation (or certain types of partnerships), a new law called the Corporate Transparency Act (CTA) will soon require that you file a report identifying owners and managers of the entity. The law takes effect in a few short weeks. Contact your THK lawyer for full details of how this may impact your business entity.

As a high-level overview, here are a few questions that THK lawyers have been answering lately:

Does the CTA apply to every small LLC or corporation?
There are very few exceptions. The average small LLC or corporation is included. Medium to large companies (those that have at least 20 full-time employees and more than $5 million in gross receipts), are exempt, as are 501(c)(3) nonprofit corporations.

What kind of report is required?
Each company is required to report “beneficial ownership information” about the owners and individuals who control the company. An owner is anyone who owns 25% or more of the company, either directly or indirectly. A person who “controls” the company is someone who, directly or indirectly, leads, determines, or influences the decisions of the company. This includes officers and managers.

What information is included in the report?
The company itself must report its legal name and any trade names (DBAs) that it uses, along with its addresses and its taxpayer identification number (EIN).

For each beneficial owner, you will need to report the name, address, birthdate, and a unique ID number such as a driver’s license number or passport number (not a Social Security number). You also need to include an image of the document from which that unique identifying number was obtained, including the individual’s photograph. An example would be a copy of your driver’s license.

What is the point of all this?
Congress passed this law to help law enforcement investigate money laundering and other financial crimes. It is intended to prevent bad actors from hiding their identities through the use of shell companies.

When is this report due?
For all existing companies, or those created prior to the end of 2023, the deadline is January 1, 2025.

For all companies created on or after January 1, 2024, the report will be due within 90 days from the date the business is created.

Is there a cost to file this report?
No, there is no charge to file the report.

How do I file the report?
FinCEN (the Financial Crimes Enforcement Network, a division of the U.S. Treasury Department), is creating a website through which you will complete and submit the report. At the time of this article’s publishing, the website is not available yet.

If I have a company that I’m not using for anything, should I dissolve it before the end of this year?
That’s not a bad idea. If the company is dissolved before the end of 2023, it would not be subject to disclosure requirements under the act.

On the other hand, there is an exemption for companies that (a) have no assets at all and (b) have not had any money flowing through them during the past 12 months.

If I’m planning to form a company in early 2024, should I form it before the end of this year?
That’s not a bad idea either. That way your reporting deadline would not be until January 1, 2025.

If I own or operate a number of companies, is there any way to streamline this?
FinCEN will be assigning you a unique identification number, called a FinCEN identifier. Once you have this, it will be simpler to report your information for each entity.

Is there any penalty for failing to file this report?
Yes. If FinCEN finds that you willfully violated the law, you can be fined $500 for each day that the violation continues, up to $10,000, and imprisonment for not more than two years or both.

Will this information be publicly available?
No. But FinCEN is authorized to disclose it to U.S. federal law enforcement agencies and, with court approval, certain other government agencies. FinCEN can also disclose the information to financial institutions if they have received consent from you (as might be included in the small print in forms signed when you open an account) for such disclosure.

Is this a one-and-done report?
No. You are required to keep the information up-to-date. This includes filing an updated report within 30 days after the date on which a change occurs, such as a change in ownership, a change in management, or change in the residential address of a beneficial owner.

This is just a sample of common questions that have arisen. Detailed information regarding the CTA is available through FinCEN at www.fincen.gov/boi. Please note that THK will not be preparing or filing reports with FinCEN, but we are available to answer any legal questions you might have and otherwise guide you on how to manage this, including how you might connect with a third-party service provider who can prepare and file reports for you.

Contact your THK professional for further advice about the Corporate Transparency Act.

James (Jay) M. Lewis, Certified Mediator, Trial Lawyer, Partner, Tuesley Hall Konopa,LLP

Author: Partner James (Jay) M. Lewis, is a business and civil litigation attorney at Tuesley Hall Konopa, LLP. Jay counsels business clients on employment-related matters. He is also a certified mediator and is licensed to practice in Indiana and Michigan.

You can contact Jay by calling 574.232.3538 or by email at jlewis@thklaw.com.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.

Are Land Contracts Ever a Good Idea?

Are Land Contracts Ever a Good Idea?

Land Contracts so often lead to trouble for either the buyer or the seller. Is it ever a good idea to use one to transfer real estate?

Yes. With the right circumstances and a fair document, a land contract (sometimes called a “contract for deed”) can be a great way to transfer real estate when traditional financing is not available.

More often, we hear about terrible results from land contracts. Unscrupulous sellers can use them to trap low-income buyers who make a down payment, invest thousands of dollars for basic repairs, but miss one or two payments and then have everything taken away – evicted as if they had been a tenant. Or sellers complain that they thought they had sold the house only to find the buyer stopped making payments and they have to get a lawyer involved to regain possession.

Land contracts work best when (a) the house is in good shape, to begin with; (b) the buyer has good credit and can afford to purchase and maintain the home, but (c) the purchase price of the home is too low to support a traditional mortgage loan. In South Bend, we have a large number of homes that sell for less than $50,000. In many cases, banks and other mortgage lenders will not finance home sales in this range because federal regulations limit the fees they can charge to a small percentage of the loan amount, making a $40,000 loan (the loan amount after 20% down on a $50,000 house) simply unprofitable for the bank. Most of these homes are bought and sold on land contract.

Under good conditions – with a home in good shape and a buyer with good credit – a land contract can work well if it’s written fairly for both the seller and the buyer. Unfortunately, many of these deals are done with forms downloaded for free from the internet – most of which are poorly written or are one-sided (usually in favor of the seller).

When a lawyer reviews a land contract, he or she is usually looking to see how the contract handles a few key issues:

  • Property Identity: Is it clear which legal parcel is being sold and what its boundaries are? It’s easy to check the public GIS records to make sure that what the County thinks the property boundaries are matches what the parties think is being sold. (Also good to check whether there might be any obvious boundary disputes with neighboring properties).
  • Term: Over how many months will the seller finance the transaction? Is there a simple-to-understand schedule of payments?
  • Interest Rate: Is the interest rate fair?  When you check the calculations, is the actual interest rate paid the same as the interest rate listed in the contract?
  • Disclosures or Warranties:  Has the seller disclosed all defects that the seller knows about? Is the seller making any warranties about the condition of the home or major systems (e.g. plumbing, electrical, HVAC, roof)?
  • Control: Does the buyer have full control over the property, except to allow the seller the right to inspect the property from time to time upon reasonable notice?
  • Recording: Do the parties plan to have the land contract (or a summary) recorded? The buyer wants this both to give notice to the world of their interest and also to enable them to claim a homestead exemption.
  • Mortgage Right: The seller should retain the right to mortgage the property during the term of the contract, so long as the balance of the mortgage loan never exceeds the balance due on the contract.
  • Forfeiture: Have the parties agreed at what point the seller has made enough payments that they have “a substantial interest” in the property such that a default would lead to foreclosure rather than forfeiture? It’s better to pick a dollar figure – usually around 30% of the purchase price.

Finally, when someone is buying a home on a land contract, it’s always a good idea to have a basic title search done on the property before signing the contract. For around $150, a title company will comb through public records to (a) confirm that the party selling the home actually owns it and (b) reveal whether any other parties have liens on the property. It would obviously be a waste of time and money for a buyer to make years of payments only to later learn that the seller can’t transfer clean title.

James (Jay) M. Lewis, Certified Mediator, Trial Lawyer, Partner, Tuesley Hall Konopa,LLP

Author: Partner, James (Jay) M. Lewis, is a business and civil litigation attorney at Tuesley Hall Konopa, LLP. Jay counsels business clients on employment-related matters. He is also a certified mediator and is licensed to practice in Indiana and Michigan.

You can contact Jay by calling 574.232.3538 or by email jlewis@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.

Is Commercial Court a Better Place to Resolve Your Dispute?

Is Commercial Court a Better Place to Resolve Your Dispute?

This summer, Indiana created a new court system designed for business disputes. The Indiana Commercial Courts are now “open for business.” Indiana is the 23rd state to create special business courts over the last 20 years or so. Our neighbors Illinois, Ohio, and Michigan already have similar courts.

The idea is to have business disputes handled by a small number of judges who are both (a) focused on business issues, rather than juggling a variety of family law or criminal law matters, and (b) using special rules and procedures designed to speed up the resolution of each case.

Commercial Court judges are encouraged to be very active and involved in managing deadlines, keeping close tabs on the progress of discovery (the exchange of facts), and making themselves available on short notice for hearings to keep things moving along.  Judges are also encouraged to engage outside experts to serve, if the parties agree, like “Masters” for a particular case. Commercial Court Masters can handle day-to-day issues that may arise regarding discovery, accounting, computer discovery, or other technical issues.

What kinds of disputes qualify for Commercial Court? Only cases that were filed after June 1, 2016, involve businesses or business owners on both sides and involve a contract dispute, non-compete agreement, trade secrets, sales transaction, franchise agreement, ownership/control of a business, or similar business disputes.

The primary goal is to speed things up. Studies confirm what every business manager knows: the longer a case drags on, the more is spent in legal fees. Given that most business disputes are ultimately settled at mediation or through negotiation, the idea is to get there faster. If you speed up discovery, decision-makers on both sides can more quickly understand all of the facts and then evaluate and resolve the case.

One feature that may help the speed and quality of decisions is a special budget earmarked to hire four new law clerks to assist the six Commercial Court judges. Adding this research support should help the judges rule more quickly and accurately on motions.

At least for now, this whole process is voluntary. Both parties have to agree to have a case handled by Commercial Court.  Otherwise, it will just proceed through the standard state-court assignment and case-handling.

Which leads to the question: Should you agree to move your new business case to Commercial Court? Our law firm is encouraging our business clients to do so, or at least give it serious thought. Most of our litigation attorneys are licensed in both Indiana and Michigan, and we have had some favorable experiences with Michigan’s similar Business Court process. In our experience, cases do move more quickly in Business Court.

Not every Indiana business case is suited for Commercial Court. But you should talk with your lawyer about it. The decision could lead to a better result in your case, and you might save both time and money.

For more information about Indiana’s Commercial Courts, visit the Indiana Judicial Center’s site: http://www.in.gov/judiciary/center/2944.htm

James (Jay) M. Lewis, Certified Mediator, Trial Lawyer, Partner, Tuesley Hall Konopa,LLP

Author: Partner, James (Jay) M. Lewis, is a business and civil litigation attorney at Tuesley Hall Konopa, LLP. Jay counsels business clients on employment-related matters. He is also a certified mediator and is licensed to practice in Indiana and Michigan.

You can contact Jay by calling 574.232.3538 or by email jlewis@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.