New SEC Guidance May Increase Use of Generally Solicited Rule 506(c) Offerings
Highlights
The SEC issued new guidance on how an issuer wishing to engage in general solicitation under Rule 506(c) may satisfy the rule’s accredited investor verification requirement
The guidance clarifies that in appropriate circumstances, a minimum investment amount coupled with the receipt of investor representations may constitute reasonable verification steps
Corporate issuers and private fund sponsors now have a clearer path to engage in broad outreach to prospective investors without imperiling an offering’s exemption from Securities Act registration
On March 12, 2025, the staff of the Securities and Exchange Commission (SEC) Division of Corporation Finance issued new guidance on the accredited investor verification steps an issuer must take in order to make an unregistered offering in reliance on Rule 506(c) under the Securities Act. The guidance indicates that issuers may fulfill the Rule 506(c) accredited investor verification requirement by imposing relatively high minimum investment requirements and obtaining related purchaser representations.
The SEC staff thus has opened a clearer path for issuers – including both operating companies and private funds – to engage in broad outreach to prospective investors without endangering an offering’s exemption from Securities Act registration.
Background
Section 4(a)(2) of the Securities Act exempts from registration “transactions by an issuer not involving any public offering.” Regulation D is a safe harbor under Section 4(a)(2), compliance with which ensures that an offering satisfies the statutory exemption. For most private issuers, the key traditional component of Regulation D has been Rule 506(b). That rule permits unregistered offerings of any size to accredited investors (and a limited number of non-accredited investors), on the condition that, among other things, the issuer refrains from “general solicitation” in connection with the offering.
In the JOBS Act of 2012, Congress directed the SEC to expand Regulation D to permit general solicitation in certain unregistered offerings. The SEC did that by adopting Rule 506(c). Rule 506(c) states that an issuer may use general solicitation when conducting an unregistered offering of any size, provided that all purchasers in the offering are accredited investors and the issuer takes “reasonable steps to verify” each purchaser’s accredited investor status.
Since the rule’s adoption in 2013, issuers have not engaged in Rule 506(c) offerings to the extent many observers had initially predicted, primarily because issuers have viewed the accredited investor verification requirement as unwieldy in practice. While Rule 506(c)(2)(ii) sets forth a list of “non-exclusive, non-mandatory” verification methods that are deemed sufficient, issuers generally have seen these as burdensome to use and uncomfortably intrusive for investors.
At the same time, issuers have been concerned that relying on the principles-based verification approach noted in the 2013 adopting release might not provide unambiguous grounds to conclude that Rule 506(c) has been satisfied, in part because the release makes clear that a mere representation by a prospective purchaser as to its accredited investor status generally would not fulfill the verification requirement.
Private issuers, including private fund sponsors, therefore have largely foregone the allure of general solicitation and continued their traditional reliance on Rule 506(b).
New SEC Guidance
The Division of Corporation Finance staff now has issued fresh guidance concerning what can constitute “reasonable steps to verify” a purchaser’s accredited investor status for purposes of Rule 506(c). The guidance, issued on March 12, takes the form of new Compliance and Disclosure Interpretations (CDI) 256.35 and 256.36, as well as a related no-action letter addressed to Latham & Watkins LLP. The staff’s initiative has the potential to revive the appeal of Rule 506(c).
Minimum Investment Amount Is a Relevant Verification Factor
CDI 256.35 advises that if an issuer does not take any of the non-exclusive, non-mandatory accredited investor verification steps outlined in Rule 506(c)(2)(ii), it can apply a reasonableness standard directly to the specific facts and circumstances of the offering and its investors. Reprising the principles expressed in the 2013 adopting release, the guidance notes that in determining what constitute reasonable verification steps, the issuer should consider factors such as the nature of the purchaser and the type of accredited investor it claims to be; the amount and type of information that the issuer has about the purchaser; and the nature and terms of the offering, including any minimum investment amount.
High Minimum Investment Amount Plus Purchaser Representations May Equal Reasonable Steps to Verify
CDI 256.36 and the no-action letter address in more detail the possible significance of a minimum investment amount in the accredited investor verification context. The guidance here advises that, depending on the facts and circumstances, an issuer may be able to conclude that it has taken reasonable steps to verify purchasers’ accredited investor status when the offering “requires a high minimum investment amount.” In amplification of that thought, the no-action letter states that an issuer generally could conclude that it has taken reasonable steps to verify a purchaser’s accredited investor status if:
the offering requires a minimum investment of $200,000 for a natural person or $1,000,000 for an entity
the issuer obtains written representations that:
the purchaser is an accredited investor
the purchaser’s minimum investment amount is not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer
the issuer has no actual knowledge of any facts indicating that the foregoing purchaser representations are not true
The idea that a minimum investment amount can be a key factor in the analysis of reasonable verification steps is not completely new. As noted, the Rule 506(c) adopting release raised this concept in general terms. The new guidance, though, is more specific and thus may inspire more confidence on the part of issuers who decide to follow it. In particular, the staff’s position now essentially permits a form of “self-certification” of accredited investor status in Rule 506(c) offerings akin to the procedure on which issuers have long relied in traditional Rule 506(b) accredited investor offerings. This is a welcome development and should reduce uncertainty for issuers conducting or considering generally solicited offerings.
Takeaways
The SEC staff now may have reinvigorated the original promise of Rule 506(c). By providing a clear explanation of how minimum investment amounts and related investor representations may satisfy the accredited investor verification requirement, the guidance offers a means of using Rule 506(c) that is more straightforward and less intrusive than issuers previously have seen the rule to be. At least for well-established corporations and private fund sponsors (for which imposing significant minimum investment amounts is typically not a problem), new and fruitful forms of offering-related publicity now may become a practical option.
Of course, an issuer that decides to engage in general solicitation under Rule 506(c) must take care that its public statements are truthful, properly vetted, and consistent with its offering materials, in order to avoid anti-fraud issues under Rule 10b-5 or state law. In addition, where an offering also is being made outside the United States, the issuer must ensure that any public marketing done in reliance on Rule 506(c) does not conflict with relevant foreign regulations.
SEC Staff Clarifies Stance on Crypto Mining
On March 20, 2025, the U.S. Securities and Exchange Commission took a step towards clarifying its position on crypto mining activities. In a recent statement, the SEC’s Division of Corporation Finance provided non-binding guidance on the application of federal securities laws to proof-of-work (PoW) mining activities, stating that such activities are beyond the SEC’s purview. This move aims to offer greater clarity to the market amidst ongoing regulatory uncertainties surrounding crypto assets.
The statement addresses crypto asset mining on public, permissionless networks using the PoW consensus mechanism. PoW mining involves using computational resources to validate transactions and add new blocks to a blockchain network. Miners are rewarded with newly minted crypto assets for their efforts.
The Division of Corporation Finance concluded that PoW mining activities do not involve the offer and sale of securities under the Securities Act or the Exchange Act, although it qualified its conclusion with footnoted statements indicating that any specific determination remains reliant on the facts and circumstances of a particular arrangement.
The statement applies the Howey test to determine whether general mining activities constitute investment contracts. The test evaluates whether there is an investment of money in an enterprise with a reasonable expectation of profits derived from others’ efforts. The SEC found that PoW mining does not meet these criteria, as miners rely on their own efforts to earn rewards. The statement further explained that combining computational resources in mining pools does not change the nature of the activity, as miners in pools still rely on their own efforts to earn rewards, not on others’ efforts. Therefore, participants in these activities do not need to register such transactions with the SEC under the Securities Act or fall within its exemptions.
Lone Democrat Commissioner Caroline Crenshaw expressed concerns about the statement, cautioning against interpreting it as a “wholesale exemption for mining.” She emphasized that the statement employs arguably circular reasoning, is non-binding, and that the SEC will continue to evaluate mining activities on a case-by-case basis. Crenshaw compared the mining statement to a previous statement on meme coins, which she believed was also misinterpreted as a broad exemption.
As the crypto industry continues to evolve, regulatory clarity remains crucial for fostering innovation while protecting investors. Crypto enthusiasts may believe the SEC’s latest statement is a step in the right direction, but market participants should remain vigilant and stay informed about ongoing regulatory developments.
New Interim Rule Removes CTA Reporting Requirements for U.S. Companies and U.S. Persons
On March 21, 2025, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an interim final rule to the U.S. Corporate Transparency Act (“CTA”) that eliminates beneficial ownership information (“BOI”) reporting requirements for domestic entities and U.S. persons. The immediate result of the interim final rule is that no U.S. entities are required to register or update any BOI reports, and no beneficial owners who are U.S. persons are required to provide BOI.
The prior rule applied to:
“domestic reporting companies”: entities created by a filing with a Secretary of State or any similar office, and
“foreign reporting companies”: entities formed under the law of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a Secretary of State or similar office.
These companies were required to file a report with FinCEN identifying their beneficial owners—the persons who ultimately own or control the company—and provide similar identifying information about the persons who formed the entity, absent an applicable exemption.
FinCEN stated that the interim final rule is intended to minimize regulatory burdens on small businesses, a priority for the new federal administration. In the preamble to the interim final rule, FinCEN stated that most domestic reporting companies not covered by an exemption under the prior rule were small businesses and determined that exempting these domestic reporting companies would not negatively impact national security, intelligence, or law enforcement efforts. FinCEN concluded that much of the BOI that would otherwise have been reported under the prior rule is provided to financial institutions at the time an entity opens a bank account or is otherwise available to law enforcement.
Modifications Under the Interim Final Rule:
The interim final rule modifies the definition of “reporting company” to only include foreign reporting companies.
All domestic reporting companies and their beneficial owners are exempt from the CTA and are not required to file or update any BOI reports.
Non-exempt foreign reporting companies are still required to file BOI reports with FinCEN, but such reports are not required to include the BOI of any beneficial owner that is a “U.S. person”.
Foreign reporting companies that only have beneficial owners that are “U.S. persons” are not required to report beneficial owners.
The special rule for foreign pooled investment vehicles only requires disclosure of the individual exercising substantial control if that individual is not a U.S. person. If more than one individual exercises substantial control over a foreign pooled investment vehicle and at least one of those individuals is not a U.S. person, the entity is required to report BOI with respect to the non-U.S. person who has the greatest authority over the strategic management of the entity.
Both the prior rule and the interim final rule incorporate the definition of “United States person” from the Internal Revenue Code, which includes U.S. citizens as well as permanent residents and persons who meet the substantial presence test under the Internal Revenue Code. As a result, the exemptions for U.S. persons apparently also apply to those foreign nationals who fall under the Internal Revenue Code’s definition of United States person. FinCEN appears to use the terms “U.S. person” and “United States person” interchangeably.
Certain U.S. Persons Are Still Required to Report BOI
U.S. persons who are company applicants (i.e., those persons who directly file, and who are primarily responsible for filing, or directing or controlling the filing of, the foreign reporting company’s registration documents with a Secretary of State or similar office) remain obligated to provide their BOI to non-exempt foreign reporting companies.
Compliance Deadlines
The interim final rule is effective as of March 26, 2025. Existing foreign reporting companies are required to file their BOI reports by April 25, 2025. Foreign companies newly registered to do business in a U.S. state or tribal jurisdiction will have thirty days from the date they receive notice that the registration is effective to file a BOI report.
The interim final rule will be open to comments until May 27, 2025; however, the interim final rule will be in effect during the comment period. FinCEN indicated that it had good cause to implement the interim final rule immediately, given that domestic entities were facing a filing deadline of March 21, 2025 and there was not enough time to solicit public comment and implement a final rule before that deadline. FinCEN intends to issue a final rule before the end of the year.
The CTA remains subject to a number of legal challenges despite the issuance of the interim final rule.
We continue to closely monitor further developments with respect to the CTA.
Martine Seiden Agatston also contributed to this article.
Is Registration As A Foreign Corporation A Form Of Compelled Consent?
Not too long ago, I wrote about a bill that is currently pending in the Nevada legislature, AB 158. This bill would authorize Nevada courts to exercise general personal jurisdiction over entities on the sole basis that the entity:
is organized, registered or qualified to do business pursuant to the laws of this State;
expressly consents to the jurisdiction; or
has sufficient contact with Nevada such that the exercise of general personal jurisdiction does not offend traditional notions of fair play and substantial justice.
The first alternative is obviously grounded upon the U.S. Supreme Court’s decision in Mallory v. Norfolk Southern Ry. Co., 600 US 122 (2023). In the case, the Supreme Court in a 5-4 decision held that a Pennsylvania statute did not offend the Due Process clause of the United States Constitution. The Pennsylvania statute provided that a company’s registration as a foreign corporation” is deemed “a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over” the corporation. 42 Pa. Cons. Stat. § 5301(a)(2)(i).
In a forthcoming article, Professor Jason Jarvis argues:
Involuntary consent is an oxymoron. Consent must be knowing and voluntary, and consent extracted by threat is coerced and invalid.
Professor Jarvis posits a case-by-case approach to consent whereby the “voluntariness of a corporation’s decision to do business in a state depends on the particular state and the particular corporation”.
The provisions of the California Civil Code concerning contracts and consent line up nicely with Professor Jarvis’ premise. Consent is “essential” to the formation of a contract, Cal. Civ. Code § 1550(2), and that consent must be “free”, Cal. Civ. Code § 1565(1). Consent is neither “real” nor “free” when obtained through: duress, menace, fraud, undue influence or mistake. Cal. Civ. Code § 1567.
Corporate Transparency Act Shakeup: Domestic Companies off the Hook, Foreign Entities Still Reporting
In a significant change to the Corporate Transparency Act (“CTA”), the Financial Crimes Enforcement Network (“FinCEN”) has announced that U.S.-based companies are no longer required to report beneficial ownership information (“BOI”).
This interim final rule, released on March 21, 2025, means that only foreign entities registered to do business in the United States will still need to meet the CTA’s reporting requirements.
Originally enacted to increase corporate transparency and fight financial crime, the CTA previously required both domestic and foreign companies to disclose their beneficial owners to FinCEN. However, domestic entities are no longer obligated to file BOI reports under the new rule. Instead, the focus has shifted to foreign companies doing business within the United States.
New Reporting Deadlines for Foreign Entities
For those foreign entities that still fall under the reporting requirements, FinCEN has outlined new deadlines based on the publication of the interim final rule. These deadlines are as follows:
Foreign entities registered before March 21, 2025: Must file their BOI reports within 30 calendar days from that date.
Foreign entities registering on or after March 21, 2025: Must file within 30 calendar days of receiving notice of their effective registration.
This update comes shortly after FinCEN’s February 27 announcement, in which the agency stated that it would not impose fines or penalties for failures to file or update BOI reports by the previous deadlines as it awaited the release of this interim final rule. It also aligns with the U.S. Department of the Treasury’s decision to suspend enforcement of the CTA.
What Qualifies as a Foreign Entity?
With reporting now limited to foreign entities, it’s essential to understand which businesses fall under this classification. According to FinCEN, foreign reporting companies are defined as entities—including corporations and limited liability companies—that are formed under the law of a foreign country and have registered to do business in the United States by filing a document with a secretary of state or any similar office. These entities are the only ones still subject to BOI reporting requirements under the revised rule.
Public Comment and Next Steps
As FinCEN continues to refine the regulation, the agency is actively seeking public feedback on the interim rule before finalizing it later this year. Companies impacted by the change are encouraged to participate in the comment process to ensure their perspectives are considered.
FinCEN Eliminates Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons and Sets New Deadlines for Foreign Companies
On March 21, 2025, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an interim final rule under the Corporate Transparency Act (“CTA”) to eliminate the requirement for U.S. companies and U.S. persons to report any beneficial ownership information (“BOI”) to FinCEN under the CTA.
Under the interim final rule only foreign legal entities formed in a foreign country and registered to do business in the United States by filing with secretaries of state or similar offices (these entities are referred to herein as “foreign reporting companies”) are required to report BOI as reporting companies under the CTA. However, under the interim final rule foreign reporting companies are no longer required to report the BOI of any U.S. persons who are beneficial owners of the foreign reporting company and U.S. persons are exempt from having to provide such information to any foreign reporting company in which they are a beneficial owner. Accordingly, foreign reporting companies that only have beneficial owners that are U.S. persons will be exempt from the requirements to report any beneficial owners.
While the interim final rule does not substantially change the requirement for foreign reporting companies that registered to do business in the United States by filing with secretaries of state or similar offices before March 26, 2025, it does extend the deadline for such entities to file initial BOI reports and to update or correct previously filed BOI to April 25, 2025. In addition, on or after March 26, 2025, a foreign reporting company will be required to file an initial BOI report within 30 calendar days of the date it registered to do business in the United States by filing with secretaries of state or similar offices.
Although the interim rule is still subject to a comment period ending on May 27, 2025, the interim final rule became effective on March 26, 2025.
Louisiana Industrial Tax Exemption Program (ITEP) – New Rules and Executive Order
On March 20, 2025, Governor Landry issued Executive Order No. JML 25-033 and Louisiana Economic Development (LED)/Board of Commerce and Industry promulgated new rules (beginning at p. 366) which make changes to Louisiana’s Industrial Tax Exemption Program (ITEP).
The changes, in part, recognize Governor Landry’s view of the importance of the ITEP as an economic development tool to encourage capital investment in Louisiana manufacturing projects. Among other changes, businesses with existing ITEP contracts under the 2017 and 2018 ITEP Rules may “opt out” of the jobs, payroll, and compliance components regardless of whether the contract is up for renewal.
Businesses with existing ITEP contracts under the old rules may want to consider opting out of the jobs, payroll, and compliance components of those contracts. The “Opt-Out” Amendment Form may be filed via LED’s Fastlane NextGen.
Among other changes, businesses with existing ITEP contracts under the 2017 and 2018 ITEP Rules may “opt out” of the jobs, payroll, and compliance components regardless of whether the contract is up for renewal.
Corporate Debtors and Transactions at an Undervalue–Lessons From the UK Supreme Court: El-Husseini and Another v Invest Bank Psc
The UK Supreme Court’s recent decision in El-Husseini and another v Invest Bank PSC [2025] UKSC 4 has clarified the circumstances in which section 423 of the Insolvency Act 1986 (the Act) provides protection against attempts by debtors to “defeat their creditors and make themselves judgment-proof”. This is a critical decision for insolvency practitioners, any corporate or fund which is involved in distressed deals and beyond to acquirers who were not aware they were dealing in distressed assets. It is potentially good news for the former, improving or fine-tuning weapons deployed for the benefit of creditors. It is potentially awkward news for the latter, who may have to look rather more broadly at insolvency issues when acquiring assets not only from distressed vendors but potentially also from vendors with distressed owners.
The case concerned an individual debtor, Mr Ahmad El-Husseini, but the decision has ramifications for corporate debtors. It confirms a broad interpretation of “transactions at an undervalue” applicable to section 423 (transactions defrauding creditors) of the Act and gives clear guidance that this interpretation applies to section 238 (transactions at an undervalue) of the Act, such that the assets which are the subject of the transaction do not need to be legally or beneficially owned by the debtor to be subject to these provisions. Instead, they can catch transactions in which a debtor agrees to procure a company which they own to transfer an asset at an undervalue.
Section 423 and Section 238 of the ACT
Section 423 of the Act (which applies to both individuals and corporates, whether or not they are or later become insolvent) is engaged where a party enters into a transaction at an undervalue for the purpose of putting assets beyond the reach of creditors or otherwise prejudicing their interests.
Section 238 of the Act (which applies to companies in administration or liquidation) is engaged where a company enters a transaction at an undervalue within two years of the onset of insolvency and the company was insolvent at the time of the transaction or became insolvent as a result of the transaction.
If a claim pursuant to section 423 or 238 of the Act is successful, the court has the power to restore the position as if the transaction had not been entered into.
The Facts in El-Husseini and Another V Invest Bank PSC
Seeking to enforce a United Arab Emirates (UAE) judgement in the sum of approximately £20 million, Invest Bank PSC (the Bank) identified valuable assets linked to Mr El-Husseini. In its judgment, the Supreme Court proceeded on the basis that Mr El-Husseini was the beneficial owner of a Jersey company which owned a valuable central London property. Further, that Mr El-Husseini had arranged with one of his sons that he would cause the Jersey company to transfer the property to the son for no consideration. As a result, the value of Mr El-Husseini’s shares in the Jersey company was reduced and the Bank’s ability to enforce the UAE judgement was prejudiced. The Bank brought claims under section 423 of the Act.
Defining A “Transaction” Falling Within Section 423 and the Ramifications For Section 238
The fundamental issue for the Supreme Court was whether, as asserted by the Bank, section 423 of the Act could apply to a transaction where the relevant assets were not legally or beneficially owned by the debtor but instead by a company owned or controlled by the debtor.
The Supreme Court ruled in the Bank’s favour, including on grounds that:
The plain language of section 423 strongly supports the conclusion that the provision contains no requirement that a transaction must involve a disposal of property belonging to the debtor personally.
A restrictive interpretation of “transaction” such that it was limited to transactions directly involving property owned by the debtor would undermine the purpose of section 423.
It was appropriate to rely on the purpose of section 423 to construe a provision which was common to section 423, 238 and 339 (which provides a remedy in the case of transactions at an undervalue where the debtor has subsequently been declared bankrupt) of the Act. These sections share a common purpose: to set aside or provide other redress when transactions at an undervalue have prejudiced creditors. The Supreme Court considered it impossible to think of circumstances in which a “transaction” was held to be within section 423 when it would not fall within section 238 and 339 of the Act. In any event, there was no reason as a matter of policy or purpose why a transfer by a company owned by an insolvent company or individual should not fall within those sections.
Thus, not only does the judgment confirm the broad interpretation of “transactions at an undervalue” applicable to section 423, but it also gives clear guidance that this interpretation applies equally to section 238.
Key Takeaways
Debtors cannot hide behind corporate structures – The ruling confirms that a corporate structure does not shield debtors who procure the transfer at an undervalue of assets belonging to companies owned by them to evade their obligations to creditors.
Stronger protections for creditors – Creditors will welcome the decision, which makes it harder for debtors to circumvent enforcement.
Greater clarity – The judgment provides clear guidance that the broad interpretation of “transactions at an undervalue” applicable to claims under section 423 of the Act can be relied upon for the purposes of claims under section 238.
CTA UPDATE: FinCEN Issues Interim Final Rule Exempting Domestic Companies and US Beneficial Owners From Reporting Requirements
Go-To Guide:
Domestic companies and their beneficial owners are now exempt from the requirement to file beneficial ownership information (BOI) reports, or to update or correct previously filed BOI reports.
Foreign reporting companies that do not qualify for an exemption must report BOI by April 25, 2025, but need not report their U.S. beneficial owners.
The Financial Crimes Enforcement Network (FinCEN) is soliciting public comments on the interim final rule and intends to issue a final rule later this year.
On March 21, 2025, FinCEN issued an interim final rule narrowing the scope of the CTA’s BOI Reporting Rule (Reporting Rule) to foreign reporting companies and foreign beneficial owners. This change follows a series of shifts in the status of the CTA since Dec. 3, 2024,1 when a Texas district court in Texas Top Cop Shop, Inc. v. Bondi preliminarily enjoined the CTA and the Reporting Rule on a nationwide basis.
Going forward, entities formed in the United States (regardless of when) are categorically exempt from CTA reporting requirements and do not have to report BOI to FinCEN, nor update or correct any BOI that may previously have been reported to FinCEN.
Foreign reporting companies (i.e., entities formed in a foreign country that are registered to do business in the United States) that do not qualify for an exemption must file their BOI reports by no later than April 25, 2025. Newly registered foreign reporting companies will have 30 days from their registration in the United States to comply with BOI reporting requirements.
Notably, foreign reporting companies need not report the BOI of any beneficial owners who are U.S. persons (including U.S. persons who are beneficial owners of foreign pooled investment vehicles by virtue of their substantial control). U.S. beneficial owners are likewise exempt from having to report their BOI with respect to foreign reporting companies in which they hold interests.
The Interim Final Rule does not exempt reporting of U.S. persons who serve as company applicants for foreign reporting companies.2
The Interim Final Rule significantly reduces the number of entities subject to BOI reporting. FinCEN now estimates approximately 12,000 reporting companies must comply with the CTA and its implementing regulations—down from the 32.6 million projected under the previous rule.
Looking Ahead
FinCEN is accepting comments on the Interim Final Rule until May 27, 2025. A final rule is expected to be issued later this year. The Interim Final Rule, with its narrower scope of reporting requirements, will be in effect in the meantime.
Foreign reporting companies should prepare to comply with the CTA and the Reporting Rule, as amended by the Interim Final Rule. Interested parties may also consider submitting written comments to FinCEN by the May 27, 2025, deadline. Additionally, all companies should stay updated on FinCEN announcements, including with respect to the final rule.
It remains to be seen whether the Interim Final Rule will be the subject of any legal challenges. In the appeal pending in the Texas Top Cop Shop challenge, the Fifth Circuit has asked for supplemental briefing on whether the dispute remains live in light of the Interim Final Rule.
For additional information regarding the CTA and its reporting requirements, visit GT’s CTA Task Force page.
1 On Dec. 3, 2024, the CTA and its Reporting Rule were preliminarily enjoined on a nationwide basis, approximately four weeks ahead of a key Jan. 1, 2025, deadline. FinCEN appealed that ruling, and on Dec. 23, 2024, a motions panel of the U.S. Court of Appeal for the Fifth Circuit stayed the injunction, allowing the CTA to go back into effect. Three days later, on Dec. 26, 2024, a merits panel of the Fifth Circuit vacated the motion panel’s stay, effectively reinstating the nationwide preliminary injunction against the CTA and Reporting Rule. On Dec. 31, 2024, the government filed an emergency application with the U.S. Supreme Court to stay that preliminary injunction. On Jan. 23, 2025, the Supreme Court granted that application (SCOTUS Order), staying the nationwide preliminary injunction in Texas Top Cop Shop, Inc. v. Bondi. See McHenry v. Texas Top Cop Shop, Inc., 145 S. Ct. (2025). Then, notwithstanding the SCOTUS Order staying the injunction in Texas Top Cop Shop, on Jan. 24, 2025, FinCEN confirmed that reporting companies were not required to file BOI Reports with FinCEN due to the separate nationwide relief entered in Smith v. U.S. Department of the Treasury (and while the order in Smith remained in effect). No. 6:24-CV-336-JDK, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). On Feb. 5, 2025, the government appealed the ruling in Smith to the U.S. Court of Appeals for the Fifth Circuit and asked the District Court to stay relief pending that appeal. On Feb. 18, 2025, the District Court in Smith granted a stay of its preliminary injunction pending appeal, thereby reinstating BOI reporting requirements once again. In response, on Feb. 19, 2025, FinCEN announced that the new filing deadline to file an initial, updated, and/or corrected BOI report was generally March 21, 2025. On March 2, the U.S. Department of the Treasury issued a press release announcing that it will not enforce any penalties or fines under the CTA against U.S. citizens, domestic reporting companies, or their beneficial owners under the current Reporting Rule or after the forthcoming rule changes take effect.
2 A company applicant, in this context, would be (a) the person who directly files the document that registers the company in a U.S. state; and (b) if more than one person is involved with the document’s filing, the person who is primarily responsible for directing or controlling the filing.
Texas Supreme Court Confirms Limits of Fifteenth Court of Appeals’ Jurisdiction
The Texas Supreme Court issued a per curiam opinion that resolved a split among Texas courts of appeals regarding the jurisdiction of the Fifteenth Court of Appeals. Addressing motions to transfer appeals out of the Fifteenth Court, in Kelley v. Homminga, No. 25-9013 and Devon Energy Production Co. v. Oliver, No. 25-9014, the Court held that the Fifteenth Court does not have jurisdiction over all civil appeals in Texas.
Instead, the Court concluded the Fifteenth Court’s jurisdiction is limited to appeals that are (1) within its exclusive jurisdiction (i.e., only those appeals involving the state or appealed from the Business Court), or (2) transferred to it by the Supreme Court for docket equalization as the Texas Government Code requires.
Scope of Geographic Reach Versus Subject-Matter Jurisdiction
The Texas Supreme Court explained that through a combination of state-wide geographic reach limited by legislated subject-matter jurisdiction, the Fifteenth Court has authority to decide appeals from any Business Court across the state. Senate Bill 1045, which created the Fifteenth Court, also granted it jurisdiction to decide “certain civil cases” that may arise anywhere in the state. The “certain civil cases” within the Court’s subject-matter jurisdiction is limited to only three substantive categories of civil appeals: (1) cases brought by or against the state, with enumerated exceptions; (2) cases involving challenges to the constitutionality or validity of state statutes or rules where the attorney general is a party; and (3) “any other matter as provided by law.” The third category includes two types of appeals: those from the newly created Business Court and those transferred to it by the Texas Supreme Court in order to equalize dockets among the courts of appeals.
Procedural Posture
In both Kelley (Galveston County) and Devon Energy (DeWitt County), defendants noticed their appeals to the Fifteenth Court, asserting that the court’s statewide jurisdiction authorized it to hear their cases. The plaintiffs in each case moved to transfer the appeals to the regional courts of appeals that traditionally hear appeals from the counties where the trial courts are located—specifically, the First or Fourteenth Courts in Kelley and the Thirteenth Court in Devon Energy.
The Fifteenth Court denied both transfer motions over dissents. Both majority opinions (2-1) held that because Texas statutes grant the Fifteenth Court general appellate jurisdiction over civil cases statewide, the Fifteenth Court could decide the appeals. While the First Court of Appeals agreed with the Fifteenth Court’s majorities, the Thirteenth and Fourteenth Courts of Appeals disagreed. Because neither the Kelley nor Devon Energy appeal fell into the three substantive categories of civil appeals over which the Fifteenth Court had subject-matter jurisdiction, the Texas Supreme Court granted the motions and ordered the appeals transferred back to the courts of appeals in the districts in which the trial courts resided.
New Jurisprudential Guidance
The Texas Supreme Court applied new terminology (gleaned from collaborative writings of Justice Antonin Scalia and Bryan A. Garner) to the jurisprudence guiding statutory interpretation. The “fair meaning” standard of statutory interpretation requires courts to discern a statute’s objectives from its plain text while also considering the broader statutory context. The Court’s view is that this approach differs from strict textualism, as it seeks to harmonize all provisions of a statute into a cohesive whole rather than focusing on the hyper literal meaning of individual words. Also animating its decision, the Court explained that reversal was necessary to avoid “gamesmanship” in seeking an appellate venue and thwarting the legislature’s intent that the Fifteenth Court give special attention to categories of cases in which it has exclusive jurisdiction and not be overburdened with cases outside of its exclusive jurisdiction. The Texas Supreme Court’s decisions in Devon Energy and Kelley provide welcome clarity on the jurisdiction of the Fifteenth Court of Appeals.
Board of Directors 101: Roles, Responsibilities, and Best Practices
Serving on a board of directors is a pivotal role in corporate governance, demanding a clear understanding of legal and financial responsibilities. This article delves into the core functions of a board, the fiduciary duties of its members, and the distinctions between fiduciary and advisory boards.
Understanding the Board of Directors
A board of directors serves as a corporation’s governing body, representing shareholders and overseeing the organization’s management. Jonathan Friedland, a corporate partner with Much Shelist PC, notes that the board’s primary functions include providing strategic direction, ensuring legal compliance, and upholding ethical standards.
Boards are typically composed of:
Inside Directors: Individuals who are part of the company’s management, such as executives or major shareholders.
Outside Directors: Independent members who are not involved in daily operations, offering unbiased perspectives.
In public companies, boards are mandated by law and must adhere to stringent compliance and financial disclosure requirements. Private companies, while not always legally required to have a board, often establish one to benefit from external expertise and governance.
The Purpose and Responsibilities of the Board
Allan Grafman highlights that an effective board transcends mere oversight; it actively shapes the company’s trajectory.
Key responsibilities include:
Strategic Oversight: Guiding long-term planning and ensuring alignment with the company’s mission.
CEO Supervision: Appointing, evaluating, and, if necessary, replacing the Chief Executive Officer.
Succession Planning: Preparing for future leadership transitions to maintain organizational stability.
Legal and Ethical Compliance: Ensuring adherence to laws and ethical standards to mitigate risks.
For public companies, these duties are underscored by regulations such as the Sarbanes-Oxley Act, which mandates accurate financial reporting and internal controls. Private companies, though subject to fewer regulations, must still navigate complex governance landscapes, balancing the interests of various stakeholders.
Fiduciary Duties of Board Members
Board members are bound by fiduciary duties, which are legal obligations to act in the best interests of the corporation and its shareholders.
These duties encompass:
Duty of Care: Directors must make informed decisions with the diligence that a reasonably prudent person would exercise in similar circumstances. This involves staying informed about the company’s operations and relevant market conditions.
Duty of Loyalty: Directors are required to prioritize the corporation’s interests above personal gains, avoiding conflicts of interest. This means refraining from engaging in activities that could harm the company or benefit them at the company’s expense.
The Business Judgment Rule offers directors protection, presuming that decisions are made in good faith and with due care. However, this presumption can be challenged if there is evidence of gross negligence or self-dealing. In such cases, courts may apply the Entire Fairness Doctrine, requiring directors to prove that their actions were entirely fair to the corporation and its shareholders.
Fiduciary vs. Advisory Boards
David Spitulnik notes that fiduciary and advisory boards are distinct in role and authority.
Fiduciary and advisory boards differ in the following key ways:
Fiduciary Boards
Legal Obligation: Hold legal responsibilities and are accountable to shareholders.
Decision-Making Authority: Empowered to make binding decisions, including hiring and firing executives.
Regulatory Compliance: Must adhere to corporate governance laws and regulations.
Advisory Boards
Non-Binding Guidance: Offer strategic advice without the authority to make final decisions.
Flexibility: Provide insights on specific issues, such as market expansion or product development.
No Legal Liability: Generally not subject to the same legal obligations as fiduciary boards.
For private companies, advisory boards can be useful in providing expertise and mentorship without the formalities and liabilities associated with fiduciary boards.
Qualities of Effective Board Members
Alex Sharpe emphasizes that board members should have the requisite skills.
Exceptional board members will possess a combination of attributes:
Financial Acumen: A strong grasp of financial statements and the ability to assess the company’s fiscal health.
Strategic Vision: The capacity to think long-term and guide the company toward sustainable growth.
Integrity: Upholding ethical standards and fostering a culture of transparency.
Industry Expertise: Deep knowledge of the sector to provide relevant insights.
Effective Communication: The ability to articulate ideas clearly and listen actively to diverse perspectives.
Spitulnik adds that meticulous preparation, such as reviewing materials in advance and taking detailed notes during meetings, enhances a director’s effectiveness and demonstrates commitment.
Compensating Board Members
Compensation for board members varies based on the company’s size, industry, and resources. While some private companies may not offer monetary compensation, providing equity stakes or other incentives can attract and retain talented directors. Companies with revenues under $20 million often have informal advisory boards with minimal compensation, whereas larger companies may offer more substantial remuneration packages.
Common Challenges in Board Governance
Even well-structured boards can encounter pitfalls. Allan Grafman and Jonathan Friedland identify several common challenges:
Role Ambiguity: Unclear definitions of responsibilities can lead to overlaps or gaps in governance.
Inefficient Meetings: Poorly organized meetings can result in unproductive discussions and delays in decision-making. Ensuring a well-structured agenda and sticking to key priorities can improve efficiency.
Lack of Strategic Focus: Boards that concentrate solely on compliance and operational oversight may fail to provide long-term strategic guidance. A balanced approach is necessary to foster both accountability and growth.
Weak Team Dynamics: A dysfunctional board can hinder progress. Differences in opinion are natural, but a lack of mutual respect or collaboration can create gridlock. Establishing clear governance policies and encouraging open dialogue are essential.
Outdated Board Composition: The business environment is constantly evolving. Boards that fail to bring in fresh perspectives or adapt to industry shifts risk becoming ineffective. Periodic board evaluations and diversity initiatives can enhance governance.
Legal and Financial Risks Facing Boards
Board members must navigate various legal and financial risks. Failing to uphold fiduciary duties can lead to lawsuits, regulatory scrutiny, and financial losses. Understanding these risks is crucial to effective governance.
Director and Officer (D&O) Liability
Board members can be held personally liable for decisions that result in financial harm to the company or its shareholders, though the Business Judgment Rule is commonly a powerful shield. To further mitigate this risk, many companies purchase Directors and Officers (D&O) insurance, which protects individuals from personal financial losses due to lawsuits or claims against them in their capacity as board members. A director can also purchase a personal policy as additional protection.
However, D&O insurance policies do not cover fraud, criminal acts, or intentional misconduct. Board members must remain vigilant in their decision-making to avoid legal exposure.
Financial Oversight and Accountability
Strong financial governance is a cornerstone of board responsibilities. Directors must ensure accurate financial reporting, prevent fraudulent activities, and comply with regulatory requirements, though many that apply to public companies do not apply to privately owned companies.
Failing to meet these obligations can lead to SEC investigations, shareholder lawsuits, and reputational damage. Adopting internal controls, conducting regular financial audits, and requiring management accountability are essential practices for boards to prevent financial mismanagement.
Bankruptcy and Restructuring Considerations
If a company becomes financially distressed, board members must navigate complex restructuring decisions, including whether to file for Chapter 11 bankruptcy. This raises the oft-cited and equally oft-misunderstood ‘zone of insolvency.’ EDITORS’ NOTE: Read What To Do When Your Company May Be Insolvent for more information about this.
David Spitulnik explains that delaying restructuring efforts or failing to act prudently can expose board members to liability. Seeking expert legal and financial guidance is crucial when a company faces distress. Directors in financial distress must prioritize maximizing value for all stakeholders.
Best Practices for Effective Board Governance
Strong boards do more than fulfill legal requirements — they drive long-term value. Implementing best practices can significantly enhance a board’s effectiveness.
Regular Board Evaluations
Evaluating board performance through annual assessments helps identify areas for improvement.
Effective evaluations should consider:
Board composition and expertise
Meeting efficiency and decision-making processes
Director engagement and contributions
Clear Governance Policies
Establishing bylaws, conflict-of-interest policies, and codes of conduct ensures that board members adhere to best practices. Transparency in governance fosters trust among shareholders and stakeholders.
Ongoing Education and Development
Staying informed about changes in laws, financial regulations, and industry trends is essential for directors. Continuous education, such as attending governance training programs or legal briefings, ensures that board members remain effective in their roles.
Active Shareholder Engagement
For public companies, engaging with shareholders proactively helps build confidence and alignment between the board and investors. Boards that listen to shareholder concerns and maintain open communication reduce the risk of activist investor disruptions.
Conclusion
Serving on a board of directors carries significant legal, financial, and strategic responsibilities. Board members must navigate fiduciary duties, compliance requirements, financial oversight, and governance challenges while ensuring the company’s long-term success.
The best boards don’t just react to problems they anticipate them. Directors who stay informed, exercise sound judgment, and uphold ethical standards can make a lasting impact on their organizations.
Understanding these principles is essential for professionals considering board service or advising boards. A well-run board is not just a legal necessity — it is a strategic asset that drives corporate success.
To learn more about this topic view Board Of Directors Boot Camp / Roles & Responsibilities: a Primer. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about the roles, structures, and duties of a board of directors.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
US Treasury Issues Interim Final Rule That Removes the Requirement for US Companies and US Persons To Report Beneficial Ownership Information to Fincen Under the Corporate Transparency Act
The Financial Crimes Enforcement Network (FinCEN) announced on March 21, 2025, that FinCEN had issued its Interim Final Rule that provides that FinCEN will not require US companies and US persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act (CTA).
In the Interim Final Rule, FinCEN revised the definition of “reporting company” in its implementing regulations to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any US State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements.
Thus, through this Interim Final Rule, all entities created in the United States — including those previously known as “domestic reporting companies” — and their beneficial owners will be exempt from the requirement to report BOI to FinCEN. Foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines, to be determined following receipt of comments from the public and publication in the Federal Register. These foreign entities, however, will not be required to report any US persons as beneficial owners, and US persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.
The Interim Final Rule will be effective immediately. In accordance with the Congressional Review Act, FinCEN has determined that “FinCEN for good cause finds that providing public notice or allowing for public comment before this Interim Final Rule takes effect is impracticable, unnecessary, and contrary to the public interest.”
The Interim Final Rule may be reviewed here.
While the March 21st, 2025, Interim Final Rule eliminates the CTA’s reporting requirements for “domestic reporting companies” and US persons, FinCEN could conceivably reverse or further revise such modifications with limited or no prior notice or comment. While this is not anticipated at this time under the current administration, companies and practitioners should continue to monitor CTA developments. The CTA also remains subject to various legal challenges.
For more information, click here.
Alexander Lovrine contributed to this post.