Planning for the Incapacity or Death of a Business Owner

As a business owner, you are used to making plans. You have had to make plans since day one – plans to get your business off the ground, plans to increase inventory, plans to take on employees. . . plans, plans, plans. One plan that some business owners don’t think about until it’s too late is what happens to their business at the death of one of the owners.

Not planning is, in fact, a plan. If no documents are in place to transfer ownership at death, the deceased owner’s probate estate is the recipient of the business interests and the business is tied up in probate court. How can you avoid this happening to your business?

First, check your corporate governance documents. Depending on the type of entity you own, this could be your operating agreement, shareholder agreement, bylaws, or a buy-sell agreement. These documents could outline any restrictions on the transfer of ownership interests. Some of the more common transfer restrictions are to other members or shareholders, revocable trusts, or family members.

Typically, two of the simpler ways to transfer ownership interest in an entity is to assign the interest during the owner’s life to a revocable trust or, alternatively, assign the interest at the death of the owner to the owner’s trust. The terms of the trust can then control where the ownership goes, how it gets to the desired beneficiaries, and who is in charge. Make sure to update operating agreements or bylaws to reflect those changes any time an assignment of ownership occurs. Assignments of ownership interests at death can also be made to other individuals provided the terms of the entity’s operating agreement or bylaws allow for this transfer. Continue reading »

Be Sure You’re Ready: The Corporate Transparency Act is Coming Soon!

To help combat money laundering, prevent financing of terrorism and drug and human trafficking, and deter securities fraud among other illicit activities, January 1, 2024, will usher in the new reporting requirements for most small and closely held businesses. Courtesy of the Corporate Transparency Act (CTA) established under the Anti-Money Laundering Act of 2020, companies will be required to disclose beneficial ownership information to the Treasury Department’s Financial Crimes and Enforcement Network (FinCEN).

What does this mean for existing entities?

All domestic corporations, limited liability companies, and other entities created under state law and formed prior to January 1, 2024, will have until December 31, 2024, to report the required information to FinCEN.

Because the CTA aims to garner information on shell companies and entities with no or little operations, it provides 23 exemptions allowing an entity not to report. One such exemption is for operating companies that meet the following requirements: (1) employ more than 20 full-time employees in the U.S., (2) had more than $5,000,000 in gross receipts or sales as reported on the prior year’s IRS Form 1120, and (3) have an operating presence at a physical office in the U.S.

What does this mean for new entities?

New entities created on or after January 1, 2024, will have 30 days from actual notice of creation or after a secretary of state provides public notice of the entity’s creation or registration, whichever is earlier, to file the required reporting information.

Whose information is reported?

Individuals who directly or indirectly exercise substantial control over the entity, senior officials who have substantial control over a company, and individuals who own or control 25% or more of ownership interests are the Beneficial Owners who must disclose required information under the CTA.

What kind of information do Beneficial Owners have to report? Continue reading »