Federal and New York State Corporate Transparency Act; Act Now!
The Corporate Transparency Act (“CTA”) is effective January 1, 2024. FinCEN now requires that all LLCs, corporations, limited partnerships, or other similar businesses file information about the company’s beneficial owners. Unless an exception applies (such as for non-profits or large organizations as defined in the Act), existing companies must file no later than December 31, 2024.
In addition, New York State has also passed a similar corporate transparency act, which takes effect on December 21, 2024.
Registration
The portal to register your company’s beneficial ownership information is currently live and may be accessed using this link ➡️ https://boiefiling.fincen.gov/
At this time, we are directly reaching out to companies whom we have personally represented at initial creation.
If you require assistance with filing your FinCEN report, please contact us by February 15, 2024. If we do not hear from you by this date, we will assume that you do not require our assistance to comply with the requirements.
The penalties for failure to timely file a complete report are steep, starting at $500 per day that the filing is late, plus criminal penalties.
Learn More
If you would like to learn more about the CTA, please refer to our prior newsletters below:
January 2024 Bulletin: FinCEN Access to Private Information
Corporate Transparency Act Authorizes Access to Government and Financial Institutions
The United States Department of the Treasury along with the Financial Crimes Network (FinCEN) implemented the Corporate Transparency Act in an effort to track illicit finances that funds drug trades, fraud, terrorism, and other crimes that enhance corporate transparency. The procedures for compliance and access to information are governed by three separate FinCEN rules: the Reporting Rule, the Access Rule and the future Customer Due Diligence Rule.
The purpose of the Access Rule is to protect the information submitted to FinCEN by a Reporting Company.
Reporting of Beneficial Owner Information Now Active
The “Reporting Rule” is effective January 1, 2024, and requires certain corporations, LLCs, partnerships and similar entities must report the name, address and ownership interest of their beneficial owners. The Beneficial Ownership Information (BOI) will be managed by FinCEN and access to this information will follow certain guidelines.
Who and When: Filing of Initial Beneficial Ownership Information Deadlines
The FinCEN technology portal for a Reporting Company to report BOI is currently active as of January 1, 2024. The portal will collect, process and store the BOI for use by the government and other interested parties, as described below.
Entities created prior to January 1, 2024 must file their BOI information via the FinCEN portal by January 1, 2025. Entities formed after January 1, 2024 must file their initial BOI within ninety days of formation.
Who Can Access the Portal and BOI Information?
In a news release on December 21, 2023, FinCEN discussed the “Access Rule,” which governs the protection of BOI information submitted to FinCEN. This rule outlines who has access to the BOI portal and how other individuals may obtain BOI information. The Access rule is currently set to be effective on February 20, 2024, at which time eligible institutions will be allowed access to the portal. Only authorized recipients will have access to BOI and the information may only be used for authorized purposes.
Direct Access to Beneficial Owner Information on FinCEN Portal
The following authorized domestic government agencies and financial institutions have direct access to search and view FinCEN’s BOI information using the portal:
- Federal agencies working in national security, intelligence, or law enforcement activity;
- State, local and tribal agencies;
- Foreign law enforcement agencies, judges, prosecutors and other authorities that meet other specified criteria;
- Financial institutions with customer due diligence requirements;
- Regulators supervising institutions;
- Treasury Department Officers and employees.
Foreign requesters do not have direct access to the FinCEN portal. Instead, they must make a request for information directly to FinCEN.
Type of Access Allowed Based on Category of Requester
The Corporate Transaction Act (CTA) lists requirements for each of the categories and are subject to security and confidentiality of the BOI. A summary of key requesters is included below.
Domestic Agencies: Direct Access, Reporting Company Consent Not Required
Domestic agencies requesting access to the Reporting System must establish and maintain a secure system for accessing and maintaining information received from FinCEN and must comply with specific security protections prior to obtaining access.
State, local and tribal agencies and tribunals, as well as law enforcement, will have access to BOI upon certifying that they have court authorization to receive BOI from FinCEN, without providing supporting documentation.
Financial Institutions: Direct Access, Reporting Company Consent Required
Financial institutions may satisfy the security standard by using the same security and information handling procedures that they use to comply with existing regulations (i.e., the Gramm-Leach Bliley Act or they must develop and implement administrative, technical, and physical safeguards reasonably designed to protect the information and provide written consent from the Reporting Company that the Financial Institution may conduct the search.
Financial institutions are authorized to use the information obtained for purposes beyond CTA. This includes compliance with Anti-Money Laundering, Office of Foreign Assets Control or other know-your-client (KYC) processes.
If a foreign government contacts a domestic financial institution requesting BOI information, the domestic financial institution must notify FinCEN within three days of receiving the request.
Foreign Requesters: No Direct Access
Foreign entities will not have direct access to the portal. They must request the information directly through FinCEN. If an international treaty, agreement or convention applies to the foreign entity, it must comply with all applicable rules.
Foreign requesters of BOI that are not governed by a treaty or convention must establish standards and procedures to protect the security and confidentiality of BOI, maintain the BOI in a secure system, and restrict access to the information, among other requirements.
Authorization to Redisclose BOI Information and Illegal Sharing
Recipients of BOI information are authorized to redisclose the information received for internal purposes, such as among officers within the same agency, to parties in a civil or criminal court proceeding, or foreign authorities consistent with an international treaty or convention under which the BOI was received.
FinCEN also can authorize the disclosure of BOI to an authorized recipient under a circumstance where there is an authorized purpose for the redisclosure.
Significant Penalties for Illegally Disclosing BOI
Violations of these rules and knowing disclosure of BOI and knowingly used in an unauthorized manner has both civil and criminal penalties attached to it. Civil penalties are in the amount of $500.00 daily if the violation continues. Criminal penalties are a fine in the amount of $250,000.00 and imprisonment for up to five years.
Institutions that violate this can be suspended or disbarred from the BOI IT system.
Compliance and Next Steps
These rules might continue to evolve as the CTA rolls out in the coming year. FinCEN will publish forms on its website for comments. Later this year, FinCEN will provide guidance on the Customer Due Diligence Rules governing ongoing compliance reporting
changes to beneficial owners.
Contact Us for Assistance
If you have any questions on the CTA or how it may apply to your small business, please contact our office at 212-328-9568 or via email at assistant@abelajlaw.com.
If we do not hear from you by February 15, 2024, we will assume that you do need our assistance with the CTA.
December 2023 Bulletin: New Law
Corporate Transparency Act Creates Trap for Unwary
Starting January 1, 2024, small corporations, LLCs, and similar entities are required to report beneficial ownership information to the Treasury’s Financial Crime Enforcement Network (FinCEN). The penalty for failure to file is up to two years in prison and $10,000. The deciding factor appears to be if the entity was created by filing a document with the secretary of state or similar office. If so and no exception applies, the FinCEN filing is mandatory.
Exceptions and Trusts
The current exceptions are not-for-profit organizations and trusts which were not created by filing a document with the secretary of state. However, if your trust owns an interest in an LLC, corporation, family limited partnership or other reportable entity, then the entity must reflect the beneficial owner as the trust.
Beneficial Ownership
Determining who is a beneficial owner can be difficult. A beneficial owner is any individual who directly or indirectly exercises substantial control over the company or who owns or controls 25 percent or more of the company. Substantial control is broadly defined to include senior officers, those who have the ability to appoint or remove senior officers or a majority of the board of directors, those who have substantial influence over important decisions, and (the catch-all) those who have any other form of substantial control over the company.
Reporting Requirements
A reporting company must provide (1) its legal name and any trade name or DBA, (2) its address, (3) the jurisdiction in which it was formed or first registered, and (4) its Taxpayer Identification Number (TIN).
For each of the company’s beneficial owners, the company will need to provide the individual’s (1) legal name, (2) birthdate, (3) address, and (4) an identifying number from a driver’s license, passport, or other approved document for each individual, and an image of the document that the number is from. That’s right. They want a copy of your driver’s license or passport.
Filing Deadlines
Companies created or registered before January 1, 2024, must file by January 1, 2025. Companies created or registered after December 31, 2023, must file within 90 calendar days of formation. FinCEN will accept reports electronically beginning January 1, 2024. Final forms are still in the making.
Ongoing Reporting
This is not just a one-time reporting requirement. A company will have 30 days to report any changes to reported information—i.e., any changes in beneficial ownership. For updates, the 30 days start from when the relevant change occurs. For corrections, the 30 days start after becoming aware of—or having reason to know of—an inaccuracy in a prior report. There are no safe harbors for filing an incorrect report.
The government expects over 32 million initial reports to be filed at an estimated cost of about 22 billion dollars; and then 2 billion dollars in additional cost each year for updated reports. In my opinion, the government’s cost estimate is ridiculously optimistic because the rules are complex.
Contact Us for Assistance
If you would like help in determining if a filing is required and then filing the required report in 2024, please contact our office at 212-328-9568 or via email at assistant@abelajlaw.com.
Creating A Business Succession Plan
Starting and building a business is a work of a lifetime that requires making unsaid compromises and facing unknown hardships. Yet, when it comes to planning a future for their businesses, most business owners do not have a legal plan in place. The United States Small Business Administration reports that around 70 percent of privately owned businesses, with an estimated worth of $70 trillion, will change hands in the next 10–15 years. Yet, as reported by the National Association of Corporate Directors, only one in four private companies opt to have a formal succession plan in place. If you want to know more about creating a business succession plan for your business and about the legal process involved, consider contacting the experienced New York estate planning attorneys of Jennifer V. Abelaj Law Firm today by calling 212-328-9568.
What Is Business Succession Planning?
In simple words, business succession planning means preparing in advance for a change in the ownership of the business. This involves identifying the events that may cause the ownership change, establishing certain timelines and standard operating procedures, and identifying potential successors or key employees.
Unforeseen and unfortunate events, such as a family feud, death, severe illness, or disability, may require a sudden change in business ownership and management. Having a proper succession plan for a business is like having a will for a person. When a person prepares a will, that person decides what will happen to his or her wealth and property after he or she dies. Similarly, having a business succession plan in place ensures that the business has an exit or a transfer per the owner’s wishes.
Benefits of Having a Business Succession Plan
Creating a succession plan for one’s business has many benefits. Some of these benefits include:
- Smoothing the transition
- Maximizing value and minimizing loss
- Training future leaders or employees
- Identifying weaknesses
- Retaining key employees or creating roles
Smoothing the Transition
If the business is to be transferred to a family member, a succession plan enables a smooth and clear transition and avoids a potential family feud. Rather than leaving it to the court to decide what happens to the business, the decision is made by the business owner in advance when a plan is in place.
Maximizing Value and Minimizing Loss
If the business is to be sold or transferred to a third party, a pre-determined plan about how that transition will be handled helps to maximize the value of the business. Having a succession plan in place also helps to avoid a last minute or sudden sale below the market or fair value.
Training Future Leaders or Employees
Whether the business is to be transferred among family members or to a key employee, identifying the potential successor or successors allows time for sufficient training.
Identifying Weaknesses
While planning in advance, the owner may identify loopholes or inefficiencies in the business and will be able to make a plan to address those weaknesses.
Retaining Key Employees or Creating Roles
Certain employees are important to the success of the business. Further, a business owner may want to involve certain family members in the business. With succession planning, the business owner has the opportunity to retain those employees and create roles as needed for family members.
If you have been thinking about creating a business succession plan but are not sure about the best options for your business, a skilled estate planning attorney at Jennifer V. Abelaj Law Firm can help you better understand the steps involved in creating a sound business succession plan.
Steps To Create a Business Succession Plan
Creating a business succession plan involves considering multiple factors. Some of the most important steps involved in creating a business plan include the following:
- Identifying future goals
- Identifying potential successors
- Conducting a business valuation
- Completing estate and tax planning
- Making necessary changes to governing documents
- Selecting an exit option
- Selecting a team of professionals
Identifying Future Goals
While creating a business succession plan, the business owner needs to identify personal goals are and desires for the business. This includes retirement planning and, if the business is a family business, choosing whether to transfer the business to family members or opt for an exit strategy.
Identifying Potential Successors
A business owner must initiate an honest conversation with family members and identify who is most capable of running the business. Additionally, determine whether the family member is actually interested in running the family business in the future. Sometimes, however, a key employee may be best suited to run the business through an Employee Stock Ownership Plan. If there are no potential candidates, the business owner may consider selling the business.
Conducting a Business Valuation
Conducting a business valuation through an appraiser is important to the process of creating an appropriate business succession plan. A business valuation is done on the basis of revenues, potential incomes, debt, assets, pending litigation, and current market value.
Completing Estate and Tax Planning
Estate and tax planning is one of the most important steps in a business succession plan. Failing to plan these well can lead to unnecessary expenses. However, proper planning can minimize taxes.
Making Necessary Changes to Governing Documents
Making corresponding changes in the organization’s governing documents will ensure that those documents align with the succession plan. Any contrary terms or clauses in the company’s partnership agreement or shareholder agreement may later create a hurdle if not changed accordingly.
Selecting an Exit Option
Typically, business owners select one of four modes of exiting their own business:
- Transferring to a family member
- Making a sale deal with a key employee or a business partner
- Selling the company to a third party
- Closing and liquidating the company
Selecting a Team of Professionals
A good business succession plan addresses the multiple factors that impact the value and longevity of the business. Therefore, it is important to select a team that can handle the many aspects of succession planning.
Contacting a Business Succession Planning Attorney
Creating a business succession plan is a challenging and multidisciplinary task. One needs to consider family relationships, personal future goals, taxes, and other legal matters involved while making a solid succession plan. To learn more about your legal options and how you can create a succession plan for your business, consider contacting an experienced New York estate planning attorney at Jennifer V. Abelaj Law Firm today by calling 212-328-9568 to schedule a consultation.
Valuation Of Hard To Value Assets
It is difficult to determine the value of hard to value assets, hence their name. Hard to value assets, also referred to as HTVAs, can make appraisals in estate planning and business valuation more complicated and time-consuming. There are different methods for valuing hard to value assets, but the appropriate methodology depends on the type of asset and the circumstances surrounding the valuation. A consultation with a knowledgeable estate planning attorney may be beneficial for a proper and accurate valuation of hard to value assets. At the Jennifer V. Abelaj Law Firm, we assist clients in New York with a wide range of estate planning needs. You can request more information by calling 212-328-9568 and scheduling a consultation.
Methods for Valuing Hard to Value Assets
The methods for valuing HTVAs differ from one case to another. Choosing the appropriate methodology requires a thorough understanding of appraisal regulations and available valuation approaches. When selecting the method for a valuation of hard to value assets, it is vital to consider the purpose of the valuation, the asset’s competitive properties, and the nature of the local market. When valuing HTVAs, appraisals need to apply a comprehensive framework, follow the accepted guidelines, use professional judgment, and consider all factors to ensure an accurate valuation.
A Guide to Valuation of Hard to Value Assets
As mentioned, the appropriate method for valuing hard to value assets depends on the type of asset and reason for the valuation. For example, is the valuation necessary as part of a sale, gift or death. What follows are general guidelines for valuing these HTVAs:
- Real estate and automobiles
- Stocks
- Bonds
- Life insurance
- Annuities
- Business
- Personal property
- Debts
Real Estate and Automobiles
Often, people seek the help of an experienced real estate agent to estimate the value of their real property. An agent who knows the local market will be able to provide a rough estimate. However, this approach may not work with hard to value real estate. Similarly, certain automobiles, such a collectibles or rare versions, may have a value which depends on whether it is part of a collection. If the asset requires a more thorough analysis, the owner of the property will most likely have to hire an appraiser and collect all available information about real estate and any automobiles in order to obtain an accurate valuation.
Stocks
Valuing closely-held stocks often involves computing the company’s price-to-earnings ratio. However, an amateur may not be able to determine the value of stocks accurately. If the owner of stocks dies, the personal representative of the decedent’s estate may choose to get in touch with the company that managed the decedent’s stocks or consult with a financial expert well-versed in stock valuation. Title 26 of the Code of Federal Regulations (CFR) § 20.2031-2 provides guidelines for the valuation of stocks and bonds based on selling, bid, and asked prices.
Bonds
The approach to valuing bonds is similar to the method for valuing stocks. Determining the value of a bond usually involves calculating the bond’s cash flow and face value. The individual or firm performing a valuation of a bond may also need to add accrued interest that has not been paid after the decedent’s death.
Life Insurance
When determining the value, the appraiser may calculate the policy’s face value and cash value. The policy’s face value is the amount of money beneficiaries of the policy receive upon the owner’s death. The cash value, on the other hand, is the accrued amount that can be accessed outside of the death benefit. For life insurance that is part of a gifting transaction, sometimes the value is based on the interpolated terminate reserve (ITR). The ITR is similar to the cash value, but the calculation is based on various other factors.
Annuities
A valuation of hard to value assets may also include valuing annuities if the decedent owned any. In order to determine the value of annuities, the personal representative of the decedent’s estate may need to contact the company that sold the annuities to valuate them as of the date of the owner’s death.
Business
Often, determining the value of a business is the most challenging part of valuing hard to value assets because businesses may include both tangible and intangible assets and liabilities. A business is also difficult to value if the deceased person was not the only owner of the business. In this case, the personal representative of the estate may need to contact a certified public accountant to estimate the value of the deceased person’s interest. However, business and other valuations may be easier if planned in advance. At the Jennifer V. Abelaj Law Firm, we offer estate planning and business succession planning services tailored to each client’s needs.
Personal Property
Certain types of personal property may be considered hard to value assets. Common examples of HTVAs among personal property include cryptocurrency, digital assets, works of art, jewelry, and antiques. While many people choose to visit eBay and similar platforms for estimating how much personal property is worth, it may be necessary to reach out to an auction house, art museum, gemologist, or other expert who specializes in valuing antiques, artworks, and jewelry.
Debts
According to the Federal Trade Commission, the personal representative of the estate is responsible for settling the deceased person’s debts. Once the valuation of hard to value assets is complete, it is essential to identify all debts that the debtor owes and determine their value. Common types of debt include mortgages, credit cards, loans, and debts associated with the deceased person’s medical treatment prior to the death.
Is an Appraisal Necessary for a Valuation of Hard to Value Assets?
An appraisal may be necessary for some of the hard to value assets mentioned above. Usually, people choose to hire a professional appraiser for an accurate appraisal. It is recommended to request the appraisal as soon as possible after the decedent’s death. A valuation of hard to value assets can become even more difficult if a significant amount of time has passed after the owner’s death. The Date of Death Appraisal is necessary for several purposes, including taxes. The appraisal will be used to establish whether an estate tax should be paid to the Internal Revenue Service (IRS) and to determine the amount of estate tax if any.
Contacting an Estate Planning Attorney
For assistance with the valuation of hard to value assets, consider seeking legal guidance from an estate planning attorney at the Jennifer V. Abelaj Law Firm. We help executors and personal representatives of estates in the efficient settling of the decedent’s affairs, including valuation of the assets. We also assist people with creating a comprehensive estate plan that takes into account the hard to value assets in order to protect them and minimize taxes. To schedule a case review, call 212-328-9568.
Protecting Your Assets As An Entrepreneur
After taking the time to launch a new business and gain traction, the last thing entrepreneurs want to do is to lose their personal assets. Protecting your assets as an entrepreneur is essential to sustaining your business in the long term, as well as your personal financial stability. Fortunately, there are ways that you can protect your business and personal assets.
Choose the Business Entity Carefully
The first step of asset protection for entrepreneurs is to select the right business entity. There are many options for establishing a business entity.
Sole Proprietor
Operating as a sole proprietor is typically the easiest type of business to structure. However, there are no asset protection benefits for this type of structure. The personal assets of the business owner are completely exposed in the event of a lawsuit. If a business owner fails to set up a separate entity, the business will be treated as a sole proprietor.
General Partnership
A general partnership is similar to a sole proprietorship in that there is unlimited personal liability for the owner. However, general partnerships consist of two or more people who operate the business together. Each partner is liable for all of the partnership’s debts, including those debts that other partners incur on the business’s behalf. A general partner can act on the other partners’ behalf without their knowledge or consent.
Limited Partnership
A limited partnership can provide some asset protection for an entrepreneur. A limited partnership consists of at least one general partner (as described above) and one limited partner. The limited partner has no personal liability for the debts or liabilities of the partnership beyond what they contributed to the partnership. The general partner is responsible for the day-to-day functions of the business.
Limited Liability Company
A limited liability company is a separate entity recognized by the Internal Revenue Service. An LLC provides liability protection to the owners of the business so that only the business assets can be sought by creditors or litigants. Its owners are known as “members.”
Corporation
Corporations are owned by shareholders who own stock in the corporation. Shareholders elect a board of directors to manage the corporation. The directors elect officers, such as the president, secretary, and treasurer, who take care of the day-to-day functions of the business.
Corporations benefit from asset protection due to their limited liability. Corporate officers, directors, and shareholders are not liable for debts of the corporation or for the wrong acts of employees or agents of the corporation. If a creditor has a claim against the corporation, it generally cannot reach the personal assets of the officers, directors, or shareholders. Instead, the creditor is limited to the corporation’s assets to satisfy their claim.
There are several types of corporations, including C corporations and S corporations. C corporations pay taxes on their business income. Additionally, business owners pay taxes on the income they receive as an owner or employee on their personal tax returns. S corporations qualify for a special Internal Revenue Service tax election that allows them to have their corporation profits pass through the business so that they are only taxed at the shareholder level. There are special rules regarding the types of stock the company can issue to shareholders, the number and type of shareholders, and how profits and losses must be allocated among shareholders to form an S corporation.
A knowledgeable attorney at the Jennifer V. Abelaj Law Firm can discuss your objectives, the structure of your business, asset protection advantages, and tax processes involved with many types of business entities.
Keep Assets Separate
After selecting the proper business structure, it is important to maintain the business as a distinct legal identity. This is easiest to do by keeping personal and business assets separate. Business owners can establish separate bank accounts and credit lines in the name of their business. Also, they may wish to avoid providing a “personal guarantee” when taking on debt in the company’s name, which works to extinguish the personal liability protection a corporate structure provides.
If the business owner owns more than one business, they should also keep these businesses separate and have separate accounts for each of them. Taking these measures can insulate the other businesses in case one business lands in financial trouble.
Purchase Insurance
Asset protection for entrepreneurs is also possible through the purchase of insurance. Businesses may benefit from a variety of insurance products, such as:
- General liability insurance – Covers losses that arise out of the business’ operations
- Professional liability insurance – Covers professionals such as accountants, engineers, and architects from claims based on their negligence
- Property insurance – Covers real property or personal property that is damaged, lost, or stolen
- Employment practices liability insurance – Covers legal costs that arise out of a business’ employment practices, whether or not the business wins the underlying legal case
- Business interruption insurance – Replaces business income that is lost because of a disaster
- Cybersecurity insurance – Covers losses caused by data breaches, ransomware attacks, or other cyber-attacks
- Umbrella insurance – Provides extra liability coverage if a loss exceeds the limits of other insurance policies
Use Trusts Strategically
Another way of protecting your assets as an entrepreneur is to use trusts strategically. Business owners can set up a trust so that it owns the business with the help of an irrevocable asset protection trust. With this type of trust, you receive maximum protection from creditors because you do not have control over the property or distributions. Since the entrepreneur is not the legal owner of the business, creditors or litigants cannot reach the entrepreneur’s personal assets.
Contact Us for Help with Protecting Your Assets as an Entrepreneur
If you would like more information about asset protection for entrepreneurs, the knowledgeable attorneys at the Jennifer V. Abelaj Law Firm can help. We offer customized estate planning and business succession planning services. You can learn more about our services and how we can help by calling 212-328-9568.