Guess Who’s Back? That’s Right – the CTA
Reporting Companies Are Now Required to Comply with the CTA by March 21, 2025
The U.S. District Court for the Eastern District of Texas lifted the stay on enforcement of the Corporate Transparency Act’s reporting requirements with its February 18, 2025, decision in Smith, et al. v. U.S. Department of the Treasury, et al.
As a result, BOI reporting is again mandatory.
As of the date of this alert, the new deadline for (a) reporting companies formed prior to January 1, 2024, to file an initial report and (b) all other reporting companies to file updated and/or corrected BOI reports is now March 21, 2025. However, if FinCEN previously gave a deadline later than March 21, 2025, to a reporting company (e.g., a disaster relief extension until April 2025), the later deadline continues to apply to that reporting company.
In FinCEN’s February 18, 2025 notice (available here: Beneficial Ownership Information Reporting | FinCEN.gov), it acknowledges that it may provide further guidance on reporting requirements prior to March 21, 2025, and as a result reporting companies may be granted additional time to comply with their BOI reporting obligations once this update (if any) is provided.
If you have been following our guidance to date, you have already gathered your BOI and should be able to file prior to March 21, 2025. If you still need assistance determining if your company is a “reporting company” or if you are required to report BOI, please reach out to your Bradley contact as soon as possible.
Legislative Note: The House of Representatives recently passed the “Protect Small Businesses from Excessive Paperwork Act,” which provides in part for an extension of the CTA reporting deadline until January 1, 2026, for reporting companies formed prior to January 1, 2024. That bill is now in committee in the Senate.
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January 2025 ESG Policy Update— Australia
Australian Update
Mandatory Climate-Related Financial Disclosures Come Into Effect
The first phase of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (Bill) commenced on and from 1 January 2025. The Bill amends the Corporations Act 2001 (Cth) to mandate that sustainability reporting be included in annual reports.
The first phase requires Group 1 entities to disclose climate-related risks and emissions across their entire value chain. Group 2 entities will need to comply from 2026, followed by Group 3 entities from 2027.
First Annual Reporting Period Commences on
Reporting Entities Which Meet Two out of Three of the Following Reporting Criteria
National Greenhouse and Energy Reporting (NGER) Reporters
Asset Owners
Consolidated Revenue for Fiscal Year
Consolidated Gross Assets at End of Fiscal Year
Full-time Equivalent (FTE) Employees at End of Fiscal Year
1 Jan 2025(Group 1)
AU$500 million or more.
AU$1 billion or more
500 or more.
Above the NGERs publication threshold.
N/A
1 July 2026(Group 2)
AU$200 million or more.
AU$500 million or more.
250 or more.
All NGER reporters.
AU$5 billion or more of the assets under management.
1 July 2027(Group 3)
AU$50 million or more.
AU$25 million or more.
100 or more.
N/A
N/A
Mandatory reporting will initially consist only of climate statements and applicable notes before expanding to include other sustainability topics, including nature and biodiversity when the relevant International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards are issued by the International Sustainability Standards Board (ISSB).
Entities are also not required to report Scope 3 emissions, being those generated from an entity’s supply chain, until the second year of reporting. Further, there is a limited immunity period of three years for Scope 3 emissions in which actions in respect of statements made may only be commenced by the Australian Securities and Investments Commission (ASIC) or where such statements are criminal in nature.
Further information on the mandatory climate-related disclosures can be found here.
New Vehicle Efficiency Standard Comes into Effect
On 1 January 2025, the New Vehicle Efficiency Standard (NVES) came into effect.
The NVES aims for cleaner and cheaper cars to be sold in Australia and to cut climate pollution produced by new cars by more than 50%. The NVES aims to prevent 20 million tonnes of climate pollution by 2030.
Under the NVES, car suppliers may continue to sell any vehicle type they choose but will be required to sell more fuel-efficient models to offset any less efficient models they sell. Car suppliers will receive credits if they meet or beat their fuel efficiency targets.
However, if a supplier sells more polluting cars than their target, they will have two years to trade credits with a different supplier or generate credits themselves before a penalty becomes payable.
The NVES aims to bring Australia in line with the majority of the world’s vehicle markets, and global manufacturers will need to comply with Australia’s laws. This means that car suppliers will need to provide Australians with cars that use the same advanced fuel-efficient technology provided to other countries.
For Australians who cannot afford an electric vehicle, it is hoped the NVES will encourage car companies to introduce more inexpensive options. There are approximately 150 electric and plug-in hybrids available in the US, but less than 100 on the market in Australia. There are also currently only a handful of battery electric vehicles in Australia that regularly retail for under AU$40,000.
Inaugural Australian Anti-Slavery Commissioner Appointed
On 2 December 2024, Mr Chris Evans commenced a five-year term as the inaugural Australian Anti-Slavery Commissioner (Commissioner), having been appointed in November 2024.
Mr Chris Evans previously served as CEO of Walk Free’s Global Freedom Network “Walk Free”. He and Walk Free played a significant role in campaigning for the introduction of the Modern Slavery Act 2018 (Cth) (Modern Slavery Act).
Prior to his time at Walk Free, Mr Evans was a Senator representing Western Australia, serving for two decades.
The Australian Government has committed AU$8 million over the forward estimates to support the establishment and operations of the Commissioner.
Among other functions, the Commissioner is to promote business compliance with the Modern Slavery Act, address modern slavery concerns in the Australian business community and support victims of modern slavery. We expect the Commissioner will take a pro-active role in implementing the McMillan Report’s recommendations for reform of the Modern Slavery Act supported by the Australian Government including penalties on reporting companies who fail to submit modern slavery statements on time and in full and the Commissioner’s disclosure of locations, sectors and products considered to be high-risk for modern slavery.
For more information on the role of the Commissioner, you can read our June 2024 ESG Policy Update – Australia.
View From Abroad
Trump Administration Provides Early Insight Into Their Position on ESG-Related Regulations
On 20 January 2025, shortly after new US President Donald Trump was inaugurated, the White House published the America First Priorities (Priorities). Several of these priorities are relevant to ESG-related policies and have been incorporated into Executive Orders and Memoranda issued by President Trump.
These Priorities, Executive Orders and Memoranda provide an insight into the new administration’s position on ESG-related regulations and include the following:
Reviewing for rescission numerous regulations that impose burdens on energy production and use, including mining and processing of non-fuel minerals;
Empowering consumer choice in vehicles, showerheads, toilets, washing machines, lightbulbs and dishwashers;
Declaring an “energy emergency” and using all necessary resources to build critical infrastructure;
Prioritising economic efficiency, American prosperity, consumer choice and fiscal restraint in all foreign engagements that concern energy policy;
Withdrawing from the Paris Climate Accord;
Withdrawing from any agreement or commitment under the UN Framework Convention on Climate Change and revoking any financial commitment made under the Convention;
Revoking and rescinding the US International Climate Finance Plan and policies implemented to advance the US International Climate Finance Plan;
Freezing bureaucrat hiring except in essential areas; and
Ordering those officials tasked with overseeing diversity, equity and inclusion (DEI) efforts across federal agencies be placed on administrative leave and halting DEI initiatives taking place within the government.
It is expected that the Trump administration will continue to prioritise economic growth over the perceived costs of ESG-related initiatives. Corporate ESG obligations may decrease, potentially creating short-term reporting relief and less shareholder pressure on companies to adopt ESG-focused policies.
Any relaxation of ESG-related regulations in the US may have extra-territorial effects on other jurisdictions as they determine whether to pause, roll-back or expand their reform programs in response. Multinational enterprises may find it difficult to navigate these potentially increasingly divergent national regimes.
UK Accounting Watchdog Recommends Sustainability Reporting Standards
On 18 December 2024, the Financial Reporting Council, as secretariat to the UK Sustainability Disclosure Technical Advisory Committee (TAC), recommended the UK Government adopt International Sustainability Standards Board reporting standards, IFRS S1 (Sustainability-related financial information) and IFRS S2 (Climate-related disclosures) (the Standards).
The purpose of these Standards is to provide useful information for primary users of general financial reports. Broadly:
IFRS S1 provides a global framework for sustainability-related financial disclosures and addresses emissions, waste management and environmental risks; and
IFRS S2 focuses on climate risks and opportunities.
Adopting these Standards in tandem ensures that companies account for their full environmental impact. TAC has also recommended minor amendments to the Standards for better suitability to the UK’s regulatory landscape. For example, extending the ‘climate-first’ reporting relief in IFRS S1 will allow entities to delay reporting sustainability-related information, by up to two years. This will allow companies to prioritise climate-related reporting.
This endorsement comes after the TAC was commissioned by the previous government to provide advice on whether the UK Government should endorse the international reporting Standards. Sally Duckworth, chair of TAC, stated that the adoption of these reporting standards is “a crucial step in aligning UK businesses with global reporting practices, promoting transparency and supporting the transition to a sustainable economy”.
With more than 30 jurisdictions representing 57% of global GDP having already adopted the Standards, the introduction of these Standards in the UK will align UK companies with international reporting standards and provide greater transparency and accountability, which is important for achieving sustainability goals and setting strategies going forward.
Sustainable Investing Spotlight for 2025
Whilst Europe has dominated the sustainable investing charge with regulators prioritising disclosure and reporting initiatives, 2025 is set to be a challenging year with the Trump administration expected to reorder priorities in the US that are likely to impact the sustainability landscape going forward. Investment data analytics from Morningstar predicts that there will be six themes that will shape the coming year:
Regulations
The US Securities and Exchange Commission (SEC) may reverse rules requiring public companies in the US to disclose greenhouse gas emissions and climate-related risks and roll back a number of other sustainability related initiatives. This is at odds with the European Union and a number of other jurisdictions globally who are focusing on rolling out climate and sustainability disclosures.
Funds Landscape
Fund-naming guidelines that have been introduced by the European Securities and Markets Authority will see a large number of sustainable investment funds across the EU rebrand, which is likely to reshape the landscape. Off the back of the de-regulation occurring in the U.S., there is an expectation that the number of sustainable investment funds will shrink. It will be interesting to see how the market responds and what investor appetite for these products across the rest of the world, will be.
Transition Investing
Investors will look to invest in opportunities arising out of the energy transition. Institutional investment is vital to meet targets, with focus predicted to be on renewable energy and battery production.
Sustainable Bonds
It is predicted that sustainability related bonds will outstrip US$1 trillion once again. Institutional investors have been targeting sustainability related bonds to aid their net zero efforts. Global players like the EU are poised to play a critical role in the global energy transition and boost the sustainability bond markets by implementing regulatory frameworks to encourage investment.
Biodiversity Finance
Nature will increasingly be recognised as an asset class, thanks to global initiatives aimed at correcting the flawed pricing signals that have contributed to biodiversity loss. These efforts seek to acknowledge the true value of nature and address the ongoing degradation of biodiversity. There is an appetite for nature-based investment, but regulatory uncertainty and uncharted pathways remain a deterrent.
Artificial Intelligence
This prominent investment theme in 2024 is likely to continue well into this year. However, there are risks associated with this asset class. The rapid adoption and volatile regulations are proving costly, along with the immense amount of energy generation required to run artificial intelligence fuelled data centres.
Canada Releases First Sustainability Disclosure Standards in Alignment with ISSB Global Framework
The Canadian Sustainability Standards Board (CSSB) has released its first Canadian Sustainability Disclosure Standards (CSDS), which align closely with IFRS Sustainability Disclosure Standards whilst also addressing considerations specific to Canada.
Broadly, and similar to IFRS Sustainability Disclosure Standards:
CSDS 1 establishes general requirements for the disclosure of material sustainability-related financial information; and
CSDS 2 focuses on disclosures of material information on critical climate-related risks and opportunities.
The CSSB has also introduced the Criteria for Modification Framework which outlines the criteria under which the IFRS Sustainability Disclosure Standards developed by the ISSB may be modified for Canadian entities.
CSSB Interim Chair, Bruce Marchand has stated that the introduction of these standards “signifies our commitment to advancing sustainability reporting that aligns with international baseline standards – while reflecting the Canadian context. These standards set the stage for high-quality and consistent sustainability disclosures, essential for informed decision-making and public trust”.
Other features of the CSDS include:
Transition relief through extended timelines for adoption;
Its voluntary adoption by entities, unless mandated by governments or regulators in the future; and
Its role in being the first part of a multi-year strategic plan by the CSSB which includes building partnerships with First Nations, Métis and Inuit Peoples to ensure Indigenous perspectives are integrated into sustainability-related standards.
The authors would like to thank lawyer Harrison Langsford and graduates Daniel Nastasi and Katie Richards for their contributions to this alert.
Nathan Bodlovich, Cathy Ma, Daniel Shlager, and Bernard Sia also contributed to this post.
Nevada Bill Would Impose A Duty That Directors Be Informed
As I and others have pointed out, Nevada leans heavily on its statutes when it comes to corporate governance. Currently, NRS 78.135 provides:
The fiduciary duties of directors and officers are to exercise their respective powers in good faith and with a view to the interests of the corporation.
The analogous provision of the California General Corporation Law provides:
A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
Cal. Corp. Code § 309(a). Neither statute specifically requires that a director act on an informed basis. But application of the business judgment rule in California likely requires that directors act on an informed basis. See Palm Springs Villas II Homeowners Ass’n, Inc. v. Parth, 248 Cal. App. 4th 268, 286 (2016) (“Permitting directors to remain ignorant and to rely on their uninformed beliefs to obtain summary judgment would gut the reasonable diligence element of the rule and, quite possibly, incentivize directors to remain ignorant.”). It is more debatable that Nevada’s “good faith” requires a director to act on an informed basis. After all, even an ignorant person might be considered to act in good faith if he or she has an honesty of intention.
The Nevada Legislature is now considering an amendment to NRS 78.135 to add “on an informed basis” after “in good faith”. Delaware Supreme Court Justice Henry Ridgely Horsey (the author of Smith v. Van Gorkum, 488 A.2d 858 (Del. 1985). The bill, AB 239, would make numerous other changes to Nevada’s corporate laws and I hope to cover at least some of these in future posts.
FinCEN Resumes Corporate Transparency Act Enforcement
The last remaining nationwide injunction prohibiting enforcement of the Corporate Transparency Act (CTA) has been stayed, clearing the way for the federal government to resume enforcing the CTA.
In the case of Smith, et al. v. U.S. Department of the Treasury, District Court Judge Jeremy Kernodle stated that, in light of the Supreme Court’s recent order in the Texas Top Cop Shop litigation, he would stay his previously issued nationwide injunction pending disposition of the matters on appeal.
As a result of Judge Kernodle’s order, the federal government may proceed to enforce the CTA and FinCEN intends to do so, stating that “beneficial ownership information (BOI) reporting obligations are once again back in effect.”
FinCEN also extended the reporting deadline for most companies.
For the vast majority of reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is now March 21, 2025. Reporting companies that were previously given a reporting deadline later than the March 21, 2025 deadline must file their initial BOI report by that later deadline. For example, if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it should follow the April deadline, not the March deadline.
Further adjustments to reporting deadlines and obligations could occur. FinCEN stated that, during the current thirty-day extension period, it will “assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.” FinCEN further stated that it “intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.” Litigation in the Texas Top Cop Shop and Smith v. Treasury cases is ongoing and the plaintiffs in these cases could prevail on their claims.
Because the CTA is back in effect, reporting companies should be prepared to file their BOI reports by March 21, 2025. Reporting companies that have already filed their initial beneficial ownership reports should review those reports to determine if they need to submit updated filings (e.g., because the previously reported information has changed).
Given the possibility of further extensions being granted before March 21, 2025, reporting companies may want to refrain from submitting their BOI reports until a date that is closer to the applicable reporting deadline.
Important Update – Corporate Transparency Act Filing Obligations Reinstated and Mandatory
CTA filings are obligatory again. Most reporting companies have until March 21, 2025 to complete their filings. If you adopted a wait-and-see posture in regard to making your CTA BOIR filings, the wait is unfortunately over.
***
Since December 2024, the CTA has been subject to nationwide injunctions (which have prohibited FinCEN’s enforcement of the CTA’s filing deadlines). Such deadlines are divided into two primary parts: the filing deadline for (i) reporting companies that were in existence prior to 1/1/2024 (“Pre-‘24 Companies”) and (ii) reporting companies formed on or after 1/1/2024 (“New Companies”).
Because the last of the injunctions (in Smith v Treasury in the 5th Circuit) has now been put on hold, FinCEN may immediately begin enforcing the CTA filing deadlines again, including for Pre-‘24 Companies.
In response to the Smith v Treasury ruling, FinCEN announced on February 19, 2025 the following:
With the February 18, 2025, decision by the U.S. District Court for the Eastern District of Texas in Smith, et al. v. U.S. Department of the Treasury, et al., 6:24-cv-00336 (E.D. Tex.), beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are once again back in effect. However, because the Department of the Treasury (Treasury) recognizes that reporting companies may need additional time to comply with their BOI reporting obligations, FinCEN is generally extending the deadline 30 calendar days from February 19, 2025, for most companies.
Notably, in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.
FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.
FinCEN then stated specifically with regard to the current CTA reporting deadlines:
For the vast majority of reporting companies, the new deadline to file an initial, updated and/ or corrected BOI report is now March 21, 2025. FinCEN will provide an update before then of any further modification of this deadline, recognizing that reporting companies may need additional time to comply with their BOI reporting obligations once this update is provided.
Reporting companies that were previously given a reporting deadline later than the March 21, 2025 deadline must file their initial BOI report by that later deadline. For example, if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it should follow the April deadline, not the March deadline.
As indicated in the alert titled “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)”, Plaintiffs in National Small Business United v. Yellen, No. 5:22-cv01448 (N.D. Ala.)—namely, Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)—are not currently required to report their beneficial ownership information to FinCEN at this time.
As a result:
All Pre-‘24 Companies (entities formed prior to 1/1/2024) are required to complete their initial filing by March 21, 2025. Note that the Pre-’24 Companies originally had a 1/1/2025 filing deadline, prior to the court actions.
All New Companies (entities formed on or after 1/1/2024) are required to complete their initial filing by March 21, 2025.
Additional Information:
Courts: While there are ongoing court proceedings that could impact the CTA in the future, there are no currently applicable injunctions (and no additional court rulings are anticipated that would alter the deadlines above). The injunctions that were recently effective were preliminary injunctions (i.e., they were issued before the courts had ruled on the merits of the cases) and courts, including the U.S. Supreme Court, have indicated that a preliminary injunction is not appropriate in this case. Courts have split as to whether or not they find the CTA to be “constitutional” (or, whether they presume the CTA to be “constitutional” in cases where a finding has not yet been made). To date, multiple courts in the 1st Circuit, 4th Circuit and 9th Circuit have issued rulings favorable to the CTA and its constitutionality, and multiple courts in the 5th Circuit and 11th Circuit have issued rulings against the constitutionality of the CTA.
Administration: While the new Administration has not made public statements regarding its intention for the CTA, and it could always change its tact, it has thus far supported the CTA in CTA related cases through recent court filings and the above FinCEN pronouncement.
Congress: The U.S. House of Representatives, on February 11, 2025, by a vote of 408 – 0, approved a bill to extend the BOIR filing deadline for only Pre-‘24 Companies to January 1, 2026. This bill has not been passed by the Senate, and, as drafted, would only delay a portion of the filings due under the CTA, and would not impact the filing obligations of New Companies.
Corporate Transparency Act’s Reporting Obligations Revived
Once again, Beneficial Ownership Information (BOI) reporting obligations under the Corporate Transparency Act (CTA) have been revived. On February 17, a federal judge lifted the stay he had ordered on January 7 in Smith v. U.S. Department of the Treasury, 6:24-cv-00336 (E.D. Tex.), which had prevented the Government from enforcing the BOI Rule on a nationwide basis.
On February 18, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released a notice that announced the following key updates:
Unless subject to a later deadline, the new deadline to file an initial, updated and/or corrected BOI report with FinCEN is now March 21, 2025.
Before March 21, 2025, FinCEN may “further modify deadlines” for entities that do not pose significant national security risks. If FinCEN does so, it will provide yet another update “recognizing that reporting companies may need additional time to comply[.]”
Importantly, “FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.” This is the strongest signal yet that the current Administration will seek formal amendments to the BOI Rule, although no details regarding proposed changes have been publicly released.
Businesses and others impacted by the CTA should prepare now to meet the March 21 deadline.
In the meantime, numerous cases challenging the CTA, including Smith, will continue to work their way through the legal process and Congress might take preemptive action. On February 10, the U.S. House of Representatives unanimously passed H.R.736, which would give FinCEN authority to extend the compliance deadline for pre-2024 reporting companies to January 1, 2026. A companion bill in the U.S. Senate. Bills to repeal the CTA remain pending as well.
If You Don’t Know the Numbers, You Don’t Know the Business
Understanding EBITDA and Why It Matters
A business can have the best sales team, the best product, or the best service in the world. But if someone in the business doesn’t understand the finance function, the business is likely to fail.
A fundamental concept used to measure the financial health of a company is EBITDA- earnings before interest, taxes, depreciation, and amortization.
EBITDA, as the acronym suggests, measures a company’s financial performance by excluding the effects of financing decisions (interest), tax obligations, and non-cash expenses like depreciation and amortization. This approach provides a clearer view of a company’s operational profitability. It’s not the only approach for such measuring (EBIT and EBITDAR are examples of competing approaches) but it is very widely used.
Why Do People Use EBITDA?
Terry Orr, a forensic accountant with HKA, points out that private equity firms favor EBITDA because it helps them quickly assess whether a company will be able to service its debt after an acquisition. Businesses, investors, and analysts utilize EBITDA for several reasons:
Comparability: It allows for an apples-to-apples comparison between companies in the same industry, regardless of how they finance their operations.
Assessing Profitability: EBITDA can indicate a company’s operational performance by removing financing and tax decisions.
Mergers and Acquisitions (M&A): Buyers often consider EBITDA to determine the price they should pay for a company.
The Pitfalls of EBITDA
While EBITDA can be a useful tool, it has its drawbacks:
It’s Not GAAP-Defined: EBITDA is not part of Generally Accepted Accounting Principles (GAAP), meaning companies can adjust how they calculate it. GAAP is the standard endorsed by the US Securities and Exchange Commission (SEC) and serves as the default accounting standard for US-based companies.
It Ignores Key Expenses: Since it excludes debt payments and capital expenditures, EBITDA may present an overly optimistic picture of a company’s financial health.
It Can Be Manipulated: Some companies adjust EBITDA with ‘add-backs’ to make their numbers look better. Attorney Candice Kline emphasizes that when examining ‘adjusted EBITDA,’ it’s important to scrutinize the adjustments, as companies may be adding back one-time expenses in a way that stretches the definition of ‘one-time.’
Real-World Application: The Lemonade Stand Example
To illustrate how EBITDA works, consider two lemonade stands:
Lemonade Stand A is funded entirely by equity.
Lemonade Stand B is financed mostly by debt.
Both have the same revenue and cost of goods sold, but because Stand B has interest expenses on its debt, its net income is lower. However, their EBITDA is the same because EBITDA does not account for interest payments.
Professor Steven Stralser notes that EBITDA reveals how well the business itself is running, but not necessarily how well the owners or investors are doing.
When to Use — and When to Question — EBITDA
Use EBITDA when comparing companies within an industry, analyzing profitability trends, or evaluating a potential acquisition.
Question EBITDA when a company uses it as the sole measure of success, when there are numerous ‘adjustments,’ or when debt and capital expenses are significant aspects of the business model.
Final Thoughts
Understanding EBITDA can make attorneys, accountants, and business professionals more effective advisors to their clients. It’s a useful tool — but like any tool, it needs to be used wisely. EBITDA is just one piece of the puzzle that should always be considered alongside other financial metrics to get the full picture.
To learn more about this topic view MBA Bootcamp / EBITDA and Other Scary Words. 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 to read other articles about accounting and finance principles for business owners and investors.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Parked: The Extension of the UK’s Sustainability Disclosure Requirements to Portfolio Managers
On 14 February 2025, the Financial Conduct Authority (the “FCA”) updated its webpage on consultation paper (CP24/8) on extending the sustainability disclosure requirements (“SDR”) and investment labelling regime to portfolio managers. In the update, the FCA confirmed that it no longer intends to do so and will continue to reflect on the feedback received and provide further information in due course.
The FCA had scheduled publishing a policy statement on this in Q2 2025, but has now stalled this, setting out they are continuing to want to ensure the extension of SDR to portfolio management delivers good outcomes for consumers, is practical for firms and supports growth of the sector.
We reported on the consultation paper here: FCA Sustainability Disclosure Requirements Consultation Paper on the Extension to Portfolio Managers now published – Insights – Proskauer Rose LLP.
Australia: Review Recommends No Increases to Wholesale Client Test, Encourages Further Review
The Parliamentary Joint Committee on Corporations and Financial Services (Committee) has been inquiring into the wholesale investor test for offers of securities, and the wholesale client test for financial products and services in the Corporations Act 2001 (Inquiry) (see our previous post). The Committee has now released its report from the Inquiry.
The Inquiry followed on from the Australian Treasury’s Managed Investment Scheme Review (see our previous post) (MIS Review) which sought feedback on whether the wholesale client thresholds remain appropriate given they have not changed since their introduction in 2001, among other matters. Treasury’s findings on the MIS Review were due to be reported to the Government in early 2024 but these have not been publicly released.
The Committee made just two recommendations:
That the government consider establishing a mechanism for periodic review of the operation of the wholesale investor and client tests; and any such mechanism include mandatory requirements for engagement and consultation with Australia’s investment industry; and
That, subject to a period of stakeholder consultation, the government amend the Corporations Act 2001 to remove the subjective elements of the sophisticated investor test and introduce objective criteria relating to the knowledge and experience of the investor.
There was much speculation about the outcome in relation to the wholesale investor/client tests, particularly given that some stakeholders, most notably the Australian Securities and Investments Commission (ASIC), advocated for the thresholds to be substantially increased.
The Committee found that “a case for raising the test thresholds has not been established at this time” and that the current thresholds remain appropriate notwithstanding the greater proportion of people meeting the thresholds.
The Committee said that it was incumbent on ASIC as the chief regulatory body for Australia’s financial system to ensure that its policy recommendations include meaningful consultation with industry stakeholders. In the Inquiry hearings, ASIC acknowledged that it had not consulted industry regarding its submission to increase the thresholds.
The Committee also encouraged the government to consider whether a broader review of the legislation regulating wholesale and retail investors and the financial markets is needed. The Committee suggested that such a review could build on the Australian Law Reform Commission’s Review of the legislative framework for corporations and financial services regulation and the Quality of Advice Review.
A Clearly Rattled Delaware Contemplates Significant Changes To Its Corporations Code
On Monday, Delaware State Senator Bryan Townsend introduced Senate Bill 21 which would, among other things, statutorily define “controlling stockholder” and substantially change the rules governing the “cleansing” of controlling stockholder transactions. Professor Ann Lipton provides a summary of these changes here and Professor Stephen Bainbridge provides his own take on the amendments here. Among other things, Professor Lipton observes:
Collectively, the changes represent a wholesale repudiation of Delaware’s common law approach to lawmaking; instead, they most closely resemble the MBCA’s rule-bound approach.
Actually, I believe that Delaware is moving in the direction of Nevada’s statutory based approach whereby the rules of the road are established primarily by the legislature and not the courts. In fact, this is often cited as a reason to reincorporate in Nevada:
After considering various alternatives, the evaluation committee concluded that Nevada’s statute-focused approach would likely foster more predictability than Delaware’s less predictable common law approach, and that that predictability could be a competitive advantage for the Company in a time of rapid business transformation.
Information Statement filed by Dropbox, Inc. on February 10, 2025.
I do disagree with both Professor Lipton and Dropbox insofar as they characterize Delaware as having a “common law approach”. A distinctive feature of the Court of Chancery is that it is a court of equity, something relatively rare in jurisprudence. A court of equity is results oriented because it is focused on “doing equity”. In fact, this has been the historical understanding that equity (ἐπιεικές*) serves as a correction (ἐπανόρθωμα) of the law. Aristotle, Nicomachean Ethics Book V, Section 10. Thus, it has been my own view that while the Court of Chancery has been an historical draw for Delaware, the Court’s broad power to do equity is ultimately proving to undermine Delaware’s preeminence. SB 21 and the Delaware legislature’s assertion of statutory law implicitly recognize this fact.
Navigating D&O Coverage for Cyber Fraud: Lessons from Alaska
An Alaska federal court recently dismissed a construction company’s lawsuit, accusing a D&O insurer of bad faith refusal to provide coverage for an email spoofing scheme that resulted in nearly $2 million in fraudulent wire transfers. Alaska Frontier Constructors, Inc., v. Travelers Cas. and Sur. Co. of Am., No. 3:24-cv-00259 (D. Alaska, Nov. 11, 2024). While the case was voluntarily dismissed before the D&O insurer responded to the complaint, the policyholder’s allegations tell a familiar story and highlight several areas of dispute that companies face when navigating the fallout from cyber incidents.
Background
Alaska Frontier Constructors, Inc. (AFC) experienced a 2023 cyber incident where an imposter tricked AFC into wiring $1.9 million into a fraudulent bank account via email. AFC’s CFO received an email that appeared to have been sent by the CFO of another company, Kuukpik, whom AFC worked closely with. The spoofed email asked when a payment would be made for money owed to Kuukpik by Nanuq, a wholly owned subsidiary of Kuukpik that AFC worked with closely on many projects.
This email was actually sent by a black hat hacker presenting to be Kuukpik’s CFO. Kuukpik and AFC provided cash payments to one another on a regular basis by an intercompany account shared by the two.
The spoofed email contained a similar email address to that of Kuukpik’s CFO, and the hacker later sent instructions via email to AFC’s CFO to send a wire to a bank in New Jersey. AFC’s controller initiated the automatic clearing house transfer to the New Jersey bank account as instructed by the hacker which caused Nanuq’s bank to transfer $1,915,448.32 into the fraudulent account. By the time AFC and Kuukpik realized the payment had been wired but not received by Kuukpik, the hacker and the money were gone.
Nanuq demanded that AFC compensate it for the money it lost and sent draft complaints with causes of action for negligence and negligent supervision and training. AFC sought coverage under its D&O policy for the fraudulent wire transfer that resulted from the spoofed email. AFC’s D&O insurer denied AFC’s claim under a “Data and Privacy Exclusion” endorsement that barred coverage all claims based upon or arising out of a list of cyber-related events that included “any unauthorized access to a computer system.”
The Coverage Lawsuit
AFC filed suit in Alaska, where AFC is incorporated and has its principal place of business. Its complaint alleged that the insurer breached the policy in refusing to defend and failing to indemnify AFC’s losses and acted in bad faith in adjusting and denying coverage for the $1.9 million in losses flowing from the fraudulent email scheme.
AFC asserted that, in denying coverage under the data and privacy exclusion, the insurer ignored the Alaska Change Endorsement, which states claims cannot be denied if an excluded cause of loss is secondary to a dominant covered cause of loss in an unbroken chain of events leading to the loss. The dominant cause of loss, AFC alleged, was AFC’s failure to use reasonable care when initiating the wire transfers and not the imposter CFO’s communication of wiring instructions. As a result, the Alaska Change Endorsement prevented the data and privacy exclusion from eliminating coverage.
AFC also contended that the insurer failed to account for the Data and Privacy Exclusion endorsement’s carveback for claims under Insuring Agreement A for non-indemnified losses of insured persons. The company asserted that this carveback applied to the company’s CFO and Controller. Having been “abandoned” by its insurer, AFC ultimately settled the case for nearly $1.7 million and then sought to recover those losses from the D&O insurer.
Before the insurer filed its answer, AFC voluntarily dismissed the lawsuit with prejudice.
Takeaways
The early dismissal likely was the result of an out-of-court confidential settlement or other negotiated resolution. Notwithstanding AFC’s voluntary dismissal, the dispute highlights several recurring coverage issues that can help or hinder the chances of recovery if a claim occurs.
Address cyber exclusions. Many D&O insurers routinely add “cyber” exclusions to D&O policies, usually through endorsement and usually covering a laundry list of underlying cyber events. The intent is to shift “cyber” risks to cyber insurance policies. But as with most insurance issues, the devil is in the details, and many times cyber exclusions are written so broadly that they can encompass D&O exposures with only attenuated connections to the enumerated cyber incidents.
The cyber exclusion endorsement in AFC’s policy was broad—it applied to “any claim based upon or arising out of,” among other things, loss or theft of, disclosure of, or unauthorized access to or use of personal private or confidential information, any unauthorized access to computer systems, any authorized access to cause intentional harm to a computer system, or any violation of law regarding the protection, use, collection, disclosure of, access to, or storage of personal private or confidential information. Policyholders should carefully assess whether their D&O policy has such an exclusion. If it cannot be eliminated entirely, consider limiting its scope by, for example, narrowing the broad causation language.
Policy coordination can avoid coverage gaps. While careful analysis and customization of D&O policy language can help prevent unexpected denials for cyber-related losses, focusing on a single line of coverage for significant loss events, especially cybersecurity incidents, may not be sufficient. D&O policies should be reviewed alongside other complementary coverages—like cyber policies—to ensure coverage grants and exclusions are working as intended and do not result in any unintended gaps.
The global cost of a data breach in the US now has reached $4.88 million on average in 2024, a double-digit percentage increase year to year and the highest total ever. Given those staggering costs, negotiating robust liability coverages with an eye towards cyber incidents is even more important because cyber policies may be quickly eroded and not available to respond to follow-on litigation, investigations, and other claims arising out of a cyber incident.
Understand governing law and its impact on coverage. The AFC dispute also showed how insurance outcomes can differ depending on governing law. Because AFC was an Alaskan company, its policy had an Alaska Change Endorsement that could intervene and preserve coverage based on dominant and secondary causes of loss. But that analysis could differ materially if a policy is governed by another state’s law or has a different state amendatory endorsement applying another rule. Policies may also have choice-of-law, choice-of-venue, and similar provisions that further impact what law governs the insurance claim and what coverage is available under a particular policy.
Evaluating these and other insurance issues in D&O and other liability policies proactively as part of regular insurance reviews can help place and renew stronger policies, maximize recovery, and prevent unexpected denials should a claim arise.
The State of the Funding Market for AI Companies: A 2024 – 2025 Outlook
Artificial intelligence (AI) has emerged as an influential technology, driving notable investments across various industries in recent years. In 2024, venture capital (VC) funding for AI companies reached record levels, signaling ongoing interest and optimism in the sector’s potential. Looking ahead, 2025 is anticipated to bring continued innovation, with promising funding opportunities and a growing IPO market for AI-driven businesses.
VC Funding in 2024: A Year of Growth
Global VC investment in AI companies saw remarkable growth in 2024, as funding to AI-related companies exceeded $100 billion, an increase of over 80% from $55.6 billion in 2023. Nearly 33% of all global venture funding was directed to AI companies, making artificial intelligence the leading sector for investments. This marked the highest funding year for the AI sector in the past decade, surpassing even peak global funding levels in 2021. This growth also reflects the increasing adoption of AI technologies across diverse sectors, from healthcare to transportation and more, and the growing confidence of investors in AI’s transformative potential.
Industries Attracting Funding
The surge in global venture capital funding for AI companies in 2024 was driven by diverse industries adopting AI to innovate and solve complex problems. This section explores some of the industries that captured significant investments and highlights their transformative potential.
Generative AI. Generative AI, which includes technologies capable of creating text, code, images, and synthetic data, has experienced a remarkable surge in investment. In 2024, global venture capital funding for generative AI reached approximately $45 billion, nearly doubling from $24 billion in 2023. Late-stage VC deal sizes for GenAI companies have also skyrocketed from $48 million in 2023 to $327 million in 2024. The growing popularity of consumer-facing generative AI programs like Google’s Bard and OpenAI’s ChatGPT has further fueled market expansion, with Bloomberg Intelligence projecting the industry to grow from $40 billion in 2022 to $1.3 trillion over the next decade. As a result, venture capitalists are increasingly focusing on GenAI application companies—businesses that build specialized software using third-party foundation models for consumer or enterprise use. This new wave of AI identifies patterns in input data and generates realistic content that mimics the features of its training data. Models like ChatGPT generate coherent and contextually relevant text, while image-generation tools such as DALL-E create unique visuals from textual descriptions.
Healthcare and Biotechnology: The healthcare and biotechnology industries have seen a significant surge in AI integration, with startups harnessing the power of artificial intelligence for diagnostics, drug discovery, and personalized medicine. In 2024, these AI-driven companies captured a substantial share of venture capital funding. Overall, venture capital investment in healthcare rose to $23 billion, up from $20 billion in 2023, with nearly 30% of the 2024 funding directed toward AI-focused startups. Specifically, biotechnology AI attracted $5.6 billion in investment, underscoring the growing confidence in AI’s ability to revolutionize healthcare solutions. As AI continues to evolve, its impact on diagnostics and personalized treatments is expected to shape the future of patient care, driving innovation across the sector.
Financial Technology: Fintech, short for financial technology, refers to the use of innovative technologies to enhance and automate financial services. It includes areas like digital banking, payments, lending, and investment management, offering more efficient, accessible, and cost-effective solutions for consumers and businesses. In recent years, AI has become an important tool in fintech, helping to improve customer service through chatbots, enhance fraud detection with machine learning algorithms, automate trading, and personalize financial advice. While overall fintech investment in 2024 has dropped to around $118.2 billion, down from $229 billion in 2021, AI in fintech remains a high-growth area, valued at $17 billion in 2024 and projected to reach $70.1 billion by 2033. This reflects a strong and sustained interest in leveraging AI to revolutionize financial services despite broader investment slowdowns in the sector.
Trends for 2025
In 2025, VC investments in AI companies are continuing the momentum from previous years. Global venture funding totaled $26 billion in January 2025, of which AI-related companies garnered $5.7 billion, accounting for 22% of overall funding. However, despite the continued interest in AI investment, the investment strategies in 2025 may evolve from the approaches seen in 2024, as market dynamics shift and investors adapt to new challenges and opportunities.
In 2024, the investment strategy was heavily characterized by aggressive funding and rapid scaling. Investor focus appeared to be on capitalizing on the hype around AI technology, leading to substantial valuations and rapid deal cycles. The strategy was primarily characterized by pure innovation, with VCs eager to back groundbreaking technologies regardless of immediate profitability. This led to significant investments in cutting-edge research and experimental applications. However, this approach often led to inflated valuations.
On the other hand, the investment landscape in 2025 is expected to shift with VCs adopting more disciplined and strategic investment approaches. The focus now appears to be on sustainable growth and profitability. Investors are predicted to become more selective, favoring companies with solid fundamentals and proven business models to navigate economic uncertainties.
Regulatory concerns are also playing an increasingly significant role in shaping VC investment strategies in AI. Governments worldwide are ramping up efforts to regulate AI technologies to address issues such as data privacy, algorithmic bias, and security risks. For instance, in the United States, regulatory scrutiny is also intensifying, with lawmakers proposing new frameworks to ensure transparency and accountability in AI algorithms. This includes discussions about mandating audits of high-risk AI systems and potentially introducing liability rules for AI-generated content. These evolving regulatory landscapes are contributing to market unpredictability, as startups may face heightened compliance burdens and legal uncertainties. As a result, while the enthusiasm for AI investments remains high, the 2025 strategy is marked by increased due diligence and a more calculated approach, reflecting a growing emphasis on navigating complex regulatory landscapes.
Resurgence of Initial Public Offerings (IPOs):
In 2025, the IPO market for AI companies is expected to be a significant area of focus, driven by a combination of strong growth in the sector and favorable market conditions. A major window for the IPO market could be opening. Analysts attribute this rebound to factors such as markets reaching new highs, stabilized interest rates, a strong economy, and a clearer understanding of the new administration’s plans following the recent election. The favorable market environment for these companies is supported by a solid U.S. economy, which is expected to grow by 2.3% in 2025.
Several major AI players are preparing to enter the public markets. One of the most anticipated IPOs is that of Databricks, an AI-driven data analytics platform that has raised nearly $14 billion in funding, most recently at a $62 billion valuation. The company has expressed intentions to go public in 2025, indicating a favorable outlook for the sector. Additionally, companies like CoreWeave, an AI cloud platform based in New Jersey, are expected to follow with their own IPOs later in the year, further fueling the optimism around AI investments. Crunchbase News highlights that there are at least 13 other AI startups with strong IPO potential in 2025. This IPO pipeline is a reflection of the broader momentum within the AI sector.
Despite these positive indicators, economic challenges such as trade tensions, inflationary pressures, and concerns over policy decisions add a layer of complexity to the market. For example, trade tensions could contribute to rising manufacturing costs, which could put pressure on companies that rely on global supply chains. Tariffs could contribute to inflationary pressures, which could dampen consumer spending and overall economic growth. These challenges highlight the need for companies to navigate an evolving landscape where trade policies and inflationary concerns could impact their growth trajectories.
Despite these hurdles, the IPO market remains buoyed by investor confidence, particularly in AI. As AI companies continue to develop new applications across industries, the appetite for public offerings remains strong. The favorable market environment for these companies suggests that AI will be a key focus for investors seeking sustainable growth opportunities in 2025.
Conclusion
The AI funding landscape in 2024 demonstrated the technology’s transformative potential across industries. As we move into 2025, investors and companies alike will need to navigate evolving market dynamics and regulatory landscapes. The IPO market, too, holds promise, provided companies are well-prepared to meet investor expectations surrounding sustainable growth and profitability.