Hello,
Now that we're ready to rock n' roll, we'll start with responses to this first question and go from there.
There are currently several court challenges to the Corporate Transparency Act (CTA). I believe you are referencing the ruling based out of Texas (issued December 3, 2024), wherein a district court issued an order granting a preliminary nationwide injunction as to the enforcement of the CTA, including the Beneficial Ownership Information Report (BOIR) filing requirement for Reporting Companies. As such, Reporting Companies are not required to file a BOIR with the US Department of Treasury (DoT), however, the DOT is accepting voluntary submissions of the BOIR.
While it is hard to anticipate with certainty where things will land when the dust settles related to these court challenges and appeals, we do not see any "harm" in filing a voluntary submission of the BOIR with the DoT, as we do not anticipate the CTA simply "disappearing" and the information supplied is stored on a non-public database within the DoT. Further, there have been recent court rulings in Texas issued within three (3) days of each other, which (i) re-instated the filing requirement and (ii) vacated the ruling issued a few days prior re-instating the filing requirement. You can imagine these rulings have caused further confusion, and as such, many simply choose to file the voluntary BOIR submission to be compliant with the CTA.
With that said, it is important that you (and each company) use your own discernment and consult with your own legal counsel prior to making a determination on whether you will file a voluntary submission and regarding the information supplied with the submission.
Importantly, the DoT publishes live updates regarding the reporting requirements and deadlines, and we suggest that you check the BOIR landing page (linked) for the most recent updates on the reporting requirements. If the reporting requirement is re-instated and your company fails to comply, you could be faced with a $500 penalty for each day that you are not compliant.
Reporting Companies are required to provide information related to Beneficial Owners of the Reporting Company, which are generally those who own at least 25% of the company or who exercise substantial control over the company. A board member may qualify as a beneficial owner if such board member is a 25% owner of the company or if the board member exercises substantial control over the company (which board members typically do). This will all be facts and circumstances specific. If you have questions related to who may qualify as a Beneficial Owner, the DoT publishes helpful FAQs (linked) and a compliance guideline (linked), which will help you examine who you should include as a Beneficial Owner.
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Alexis DeBose
alexis@archetypelegal.com
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Original Message:
Sent: 01-17-2025 07:54
From: Anonymous Member
Subject: Ask Us Anything: Startup Law with Archetype Legal
This message was posted by a user wishing to remain anonymous
I heard about the recent court ruling in Texas related to the Corporate Transparency Act and BOIR requirements. Should we still prepare to file, or is enforcement on hold? Also, do you have to include board members in filing or just owners?
Original Message:
Sent: 01-15-2025 14:02
From: Alex King
Subject: Ask Us Anything: Startup Law with Archetype Legal
Hello Carta Community!
We're attorneys from Archetype Legal PC. We serve entrepreneurs, startups, and small businesses as they grow and evolve. We believe the practice of law can be completed with a three-step approach: transparency, philanthropy, and sophistication. We'll be here to answer your questions next Wednesday, January 22, at 11:OO AM PT. From formation to an eventual exit and everything in between, such as raising capital, equity compensation, commercial transaction, compliance, and business strategy, you can ask us anything!*
We hope to interact with you on the 22nd. A bit more about us below -
Alex King is the founder of Archetype Legal; he brings deep expertise in startup financing, equity structures, and commercial transactions.
Alexis DeBose is a seasoned attorney at Archetype Legal who specializes in corporate law with expertise in entity formations and corporate compliance.
*DISCLAIMER: This is a rapid-fire response, and our feedback and comments are intended to be high-level thoughts without evaluating things like your corporate governance documents or having an opportunity to dive below the surface and know what is going on. No one should act or refrain from acting solely on what is said in our discussion. You are STRONGLY encouraged to speak with an attorney familiar with startups who can give you professional advice.
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Alex King
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