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.
Post-Transition Compensation/Buyout for Founding Law Firm Partners
Set Reasonable Expectations
Founder-owned law firms face unique challenges when it comes to transition planning. Ensuring a seamless handover to successor partners while maintaining profitability and morale is critical. This guide outlines practical strategies for managing founder partner buyouts and succession planning.
Challenges in Compensation Systems
Most small—to mid-sized firms compensate based on originations and profits. If both the founder and successor lawyer simultaneously receive credit in the compensation system, this can create financial difficulties. Recognizing these challenges early can help mitigate potential conflicts.
Practicalities of Buyouts
Buyouts are more practical between the retiring senior partner (seller) and the successor partners (buyers). Non-successor partners may resist contributing to a buyout that does not directly benefit them. Furthermore, a buyout may not be feasible depending on the firm’s profitability.
Transitioning the Founder’s Business
The founder’s business might not transfer successfully, and other partners may believe that the founding partner was already compensated while working and is not entitled to post-retirement pay. Junior partners who have worked on the senior partner’s clients might feel they deserve to inherit the relationships.
Alignment of Partner Timelines
The timelines of the remaining partners may not align with the potential benefits of buying out a founding partner. Recognizing these concerns is crucial, and founders should avoid overreaching. Sensible buyouts can help ensure that the firm’s top attorneys are not motivated to start a new firm to avoid paying senior partners a disproportionate share of current profits.
Assessing Retirement as an Independent Transaction
We advise clients to assess each retirement as an independent transaction. To perform this evaluation, the following tools are necessary:
Client profitability of the transitioning partner’s book of business
Capacity Analysis post-transition
Worklife timeline for the retiring partner
Worklife timeline for the remaining partner(s)
Origination ceding schedule
Pro-forma profitability of the transitioning book for three years
Compensation pro forma for the retiring partner and the successor partners
Objective and Process-Oriented Approach
Adopting an objective, process-oriented approach when determining a buyout price and structure minimizes the emotional aspects of negotiation. Firms equipped with the requisite data to conduct these analyses can establish expectations early in the process and create a framework for future buyouts.
Transition Modeling
To manage expectations effectively, we recommend initiating transition modeling two years before the start of any transition. We prefer a three-year buyout period with a declining payment schedule based on profitability measures before buyout costs.
Transition Compensation Elements
The key elements in setting transition compensation include an objective, process-oriented approach, early expectation-setting, and a consistent model.
Conclusion
Effective transition planning is essential for founder-owned law firms to ensure smooth succession and maintain firm stability. By recognizing potential challenges, adopting an objective approach, and initiating early planning, firms can navigate transitions successfully and safeguard their legacy.
Australian Federal Budget 2025-2026–Key Tax Measures and Instant Insights
The Australian Federal Government has just released its budget for 2025-26. The K&L Gates tax team outlines the key announced tax measures and our instant insights into what they mean for you in practice.
In summary, with an upcoming Australian federal election, the budget is light on substantive tax changes (other than personal income tax cuts), and largely defers measures to raise further revenue or amend the tax system until after the election. Whilst there will be some relief that there have not been further targeted tax measures (e.g. on multinationals), there is also likely to be disappointment that there has been no attempt at tax reform or addressing the large number of outstanding matters requiring clarification.
Key Announced Tax Measure
K&L Gates Instant Insights
Personal Income Tax Cuts From 1 July 2026
The Government has announced reductions in the first tax rate from 16% to 15% from 1 July 2026 and from 15% to 14% from 1 July 2027.
The Government has also increased the income threshold for where the 2% Medicare levy applies.
These will no doubt be welcome for individuals, and will likely form a key part of the Government’s campaign for re-election.
These changes have been largely targeted at low to middle income earners, although the tax cuts will apply to all taxpayers. Given the higher rates of inflation and wage growth, this essentially returns some (but not all) of the higher income tax take from “bracket creep” to taxpayers.
There is no relief however for businesses, small or large.
Managed Investment Trust (MIT) “Clarifications”
The Government is proposing to legislate to allow foreign widely held pension funds and sovereign funds to get access to the reduced MIT withholding tax rates on eligible income for “captive” MITs (i.e. where they are the sole actual or beneficial member of the MIT).
This is intended to “complement” the Australian Taxation Office’s (ATO’s) Taxpayer Alert TA 2025 / 1 which focused on restructuring to access MIT benefits and using structures to implement captive MITs.
This is a pre-announced, welcome change that confirms existing industry practice, and addresses a difference between the rules to qualify as a MIT and the rules to apply reduced withholding tax.
However, it was only necessary due to the ripple of serious concerns started by TA 2025/1 and focusing on “captive MITs” without sufficient clarity on the ATO’s concerns.
It remains clear that the ATO has a focus on foreign collective investment vehicles (i.e. funds) accessing MIT withholding concessions where they are the sole ultimate owner (even though they may themselves by widely held).
No Changes to Address Taxation of “Digital” Assets–Handball to the ATO
The Government has confirmed it will not legislate any amendments to the taxation laws to deal with the array of digital assets, such as “decentralised finance” (DeFi), gaming finance (GameFi) and non-fungible tokens (NFTs).
It also (in a fairly luke-warm way) endorsed the principles developed by the Board of Taxation (BoT) to guide taxation of digital assets, whilst also indicating that further ATO guidance will be available to address uncertainty.
Whilst the lack of a specific tax regime for digital assets is consistent with the BoT’s recommendations, the tepid endorsement of the BoT’s policy framework for digital assets provides little guidance on how the ATO is to develop further tax guidance to address the taxation of these novel assets, leaving the ATO to largely continue to act as policy formulator and implementor as well as revenue collector.
Based on the existing guidance, it is unlikely this will result in much relief for digital asset providers, platforms or investors.
No Further Guidance on Corporate Tax Residency
The Government has provided no update on the changes (promised back in Federal Budget 2020/21) on clarifying corporate residency laws, particularly following hardening of ATO guidance on corporate residency.
This means the ATO’s views in TR 2018/5 and PCG 2018/9 continue to be applied (notwithstanding the Government’s previously stated intent to address some of the challenges associated with those rules).
Foreign entities with Australian directors etc continue to face heightened risks of the ATO trying to allege Australian tax residency.
Announced but Unenacted Measures
The budget largely provides no clarity on a number of previously announced but unenacted measures, including:
Changes to increase scope of foreign resident CGT withholding tax – other than that this has been delayed until after legislation is enacted;
Clean building MIT rates for data centres and warehouses has been delayed until after legislation is enacted;
Small business instant asset write-off extension to 30 June 2025;
Part IVA amendments to deal with withholding tax;
CGT rollovers and response to the BoT’s review;
Additional taxation of superannuation balances over AU$3 million, including whether this incorporates unrealised gains; and
Changes to Division 7A (i.e. removal of distributable surplus requirement).
The list of announced but unenacted tax measures continues to grow and provides real uncertainty for the tax system and all taxpayers. Whilst there are some positive amendments, including deferring the commencement of the unreleased changes to foreign resident capital gains withholding, it largely leaves these matters unresolved.
Some of the measures, such as taxation of superannuation balances, are clearly baked into the budget revenue forecasts, and so although the Government has not succeeded in getting legislation passed, the intent remains to do so (pending its re-election).
The Government also appears to be in wait and see mode as to what the ultimate outcome is in the Bendel litigation to determine next steps on Division 7A.
However, there has been little or no clarity provided on most measures, and so taxpayers continue to face uncertainty. Whether we see some measures proceed will ultimately depend on the outcome of the election.
Continued Focus on Tax Integrity by the ATO
The Government has provided further funding to the ATO to address tax integrity and target tax avoidance arrangements, particularly focused on multinationals.
The Government has also provided additional funding to the ATO to address non-payment of superannuation contributions and amounts PAYG withheld on account of tax.
This will see the ATO continue to target key concerns – based on our experiences, in recent years this has involved multinationals, foreign investors (including private equity funds) and intellectual property arrangements.
The continued focus on entities using the PAYG withholding and superannuation contribution regimes as a source of funding is unsurprising, and we have seen dramatically increased ATO activity in this space. This has led to increased insolvencies in small to medium businesses.
Understanding Partial Redemptions for Startup Founders
Being a startup founder is hard. Among other things, startup founders face long hours, resource constraints, intense pressure, and the need for constant adaptation and resilience in the face of uncertainty. Founders face all these tasks while also being severely underpaid, adding to the list of trials one of the more challenging: personal financial pressure.
As a result of such financial pressure, and the frightening uncertainty of success, it is not unusual for founders to consider a partial redemption or liquidity event in which they sell a portion of their shares to the company or directly to an investor, typically as part of a proposed financing round. Such a redemption provides cash to the founder in exchange for a reduced level of ownership and risk in the company. A partial redemption may be accomplished through a cash purchase directly from the company or by using a portion of the proceeds from a financing round. A partial redemption can be a strategic move with both advantages and potential drawbacks. Understanding the nuances of this transaction is crucial for founders and investors alike.
Why Consider Partial Redemption?
Several factors might drive a company to pursue a partial redemption of the founder’s shares:
Liquidity: Founders may seek to cash out a portion of their equity for personal or financial reasons.
Tax Planning: Partial redemption can offer tax advantages, especially when structured carefully.
Corporate Governance: Reducing the concentration of ownership can improve corporate governance and decision-making.
Employee Incentive Plans: Repurchased shares can be used to fund employee stock option plans or other incentive programs.
Key Considerations:
Before embarking on a partial redemption, several factors must be carefully evaluated:
Valuation: Accurately valuing the company’s shares is essential for determining a fair redemption price. The company should review the current 409A valuation and consider the potential impact the partial redemption will have on future 409A valuations.
Tax Implications: The tax consequences for both the company and the founder can vary significantly based on factors such as the founder’s holding period, the redemption structure and the company’s tax status. In general, a shareholder may exclude 100% of gain from the redemption of Qualified Small Business Stock (QSBS) for federal income tax purposes if certain issuance date and holding period requirements are met. However, a founder’s redemption may be disqualified from QSBS tax treatment.
Corporate Structure: The company’s legal structure and governing documents may impose limitations or restrictions on share redemptions.
Financial Impact: Repurchasing shares can reduce the company’s cash reserves and potentially affect its financial performance.
Shareholder Agreement/Investment Documents: Existing shareholder agreements or investment documents may contain provisions related to share transfers, redemptions, rights of first refusal, right of co-sale or tag-along rights. The partial redemption may trigger rights for existing shareholders who may wish to participate in the sale.
Potential Drawbacks:
While partial redemption can offer benefits, it also carries potential risks:
Dilution of Ownership: If the redemption is not carefully structured, it can lead to dilution of ownership for existing shareholders.
Company’s QSBS: Impact on Qualified Small Business Stock (QSBS) for existing shares as well as future purchases.
Market Perception: A significant share repurchase can sometimes be interpreted negatively by the market.
Loss of Talent: Founders may feel less motivated or committed to the company after a partial redemption.
The decision to redeem a founder’s shares is complex. Early exits and partial redemptions can provide liquidity and diversification for founders while allowing them to maintain some ownership in the company. However, it is important to consider the potential risks, structuring options and tax implications before the company and founder engage in such a redemption.
FinCen Issues a Huge Reprieve Form Domestic Reporting Companies
O frabjous day! the Financial Crimes Enforcement Network (FinCEN) late last Friday issued an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act (CTA). Here is the FinCEN’s summary:
In that interim final rule, FinCEN revises 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 U.S. 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, detailed below. These foreign entities, however, will not be required to report any U.S. persons as beneficial owners, and U.S. persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.
Upon the publication of the interim final rule, the following deadlines apply for foreign entities that are reporting companies:
Reporting companies registered to do business in the United States before the date of publication of the IFR must file BOI reports no later than 30 days from that date.
Reporting companies registered to do business in the United States on or after the date of publication of the IFR have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.
The CTA has been proven to be a costly disaster that has imposed unnecessary costs on small businesses that are no doubt cheering Friday’s announcement.
Texas Legislature Proposes Amendments to Texas Business Organizations Code
On February 27, 2025, a significant bill affecting entities organized under Texas law was filed in the Texas Legislature as Senate Bill 29 by Senator Bryan Hughes and as House Bill 15 by Representative Morgan Meyer. The Senate and House bills are currently identical and are referred to herein as the “Bill.” The Bill proposes a series of amendments to the Texas Business Organizations Code (“TBOC”) that apply to domestic Texas entities. Most of the amendments are applicable to Texas corporations, including in particular Texas corporations having shares listed on a national securities exchange. The authors of the Bill believe the amendments would reinforce corporate governance protections in Texas and reduce the risk of opportunistic shareholder litigation.
These reforms follow the commencement of operation of specialized Business Courts in Texas last fall and coincide with ongoing efforts to develop a new Texas-based stock exchange in Dallas. Together, these initiatives signal an ongoing commitment in Texas to providing a business-friendly jurisdiction that offers a stable legal environment for corporate governance and investment.
Many of the provisions of the Bill are tailored for publicly traded companies listed on a national securities exchange. The Bill would expand the definition of “national securities exchange” to include exchanges registered with the Securities and Exchange Commission as well as any stock exchange with its principal office in Texas that has received approval to operate by the Texas Securities Commissioner. [Bill Section 1; Amending TBOC Section 1.002(55-a).]
We discuss other key provisions of the Bill below.
Other states’ laws governing internal affairs and governance
The Bill provides that although a Texas entity’s managerial officials, in exercising their powers, may consider the laws and judicial decisions of other states and the practices observed by entities formed in other states, the failure to do so does not constitute or imply a breach of the TBOC or of any duty arising under Texas law. In fact, the Bill is clear that the plain meaning of the text of the TBOC “may not be supplanted, contravened, or modified by the laws or judicial decisions of any other state.” [Bill Section 2; Adding TBOC Section 1.056.]
Choice of forum and waiver of jury trial
The Bill would amend the TBOC to clarify that a domestic entity’s governing documents may require that one or more courts in Texas having jurisdiction shall serve as the exclusive forum and venue for any internal entity claims. [Bill Section 3; Amending TBOC Section 2.115(b).] For purposes of the TBOC, an “internal entity claim” means a claim of any nature, including a derivative claim in the right of an entity, that is based on, arises from or relates to the internal affairs of the entity [TBOC Sec. 2.115(a)].
The Bill would also add a new section to the TBOC to permit the governing documents of a Texas entity to contain an enforceable waiver of the right to jury trial if specified conditions are satisfied. Some commentators have questioned whether such a provision would be found to be constitutional because the Texas Constitution provides that the right to jury trial “shall remain inviolate.” In an attempt to satisfy the standards established in prior Texas case law for enforceable jury trial waivers, the Bill affirmatively states that a person’s waiver of jury trial is knowing and informed if the person (1) voted for or affirmatively ratified the governing document containing the waiver, (2) acquired an equity security in the entity when the waiver was included in the governing documents, or (3) is shown by evidence in a court proceeding to have knowingly and informedly consented or acquiesced to the waiver. [Bill Section 4; Adding TBOC Section 2.116.]
Codification of the business judgment rule
The Bill seeks to codify the business judgment rule in Texas by stating that, in the case of a Texas for-profit corporation having shares listed on a national securities exchange or affirmatively electing in its governing documents to be governed by this new provision, directors are presumed to act (1) in good faith, (2) on an informed basis, (3) in furtherance of the interests of the corporation, and (4) in a manner consistent with the law and the corporation’s governing documents. Neither the corporation nor its shareholders would have a cause of action against the corporation’s officers and directors unless one or more of the four preceding presumptions are rebutted by the claimant and the claimant proves both a breach of duty and that the breach involved fraud, intentional misconduct, an ultra vires act or a knowing violation of law. In any legal proceeding, the claimant must state with particularity the circumstances constituting the fraud, intentional misconduct, ultra vires act or knowing violation of law. The provision expressly states that it is not intended to affect any exculpation of monetary liability included in the corporation’s certificate of formation pursuant to TBOC Section 7.001. The Bill would also apply the same standards to any claims against directors or officers for breach of duty as a result of their authorization or performance of any conflict-of-interest contract or transaction with an interested director or officer under the TBOC’s interested person statute, if the corporation has shares listed on a national securities exchange or elects to be governed by the new business judgment rule provision. [Bill Sections 9 and 10; Adding TBOC Sections 21.418(f) and 21.419.]
Inspection of books and records
The Bill would amend the shareholder inspection rights provisions of the TBOC to clarify that a shareholder making a demand to inspect a Texas for-profit corporation’s books and records is not entitled to review emails, text messages or similar electronic communications, or information from social media accounts, unless the information affects an action by the corporation. Further, building on the existing statutory principle that a shareholder is not permitted to make a books and records demand for an improper purpose, the Bill would provide that, in the case of a corporation having shares listed on a national securities exchange or electing in its governing documents to be governed by the business judgment rule provisions, a written inspection demand will not be for a proper purpose if the corporation reasonably determines that the demand is in connection with a derivative proceeding that has been instituted or is expected to be instituted by the demanding holder or the holder’s affiliate, or if the demand is in connection with an active or pending civil lawsuit in which the demanding holder or the holder’s affiliate is or is expected to be an adversarial named party. [Bill Section 4, Amending TBOC Section 21.218.]
Advance determinations of independent and disinterested directors
The Bill would permit the board of directors of a Texas for-profit corporation having shares listed on a national securities exchange to adopt resolutions that authorize the formation of a committee of independent and disinterested directors to review and approve transactions, whether or not contemplated at the time of the committee’s formation, involving the corporation or any of its subsidiaries and a controlling shareholder, director or officer. In a novel new provision, the corporation adopting such a resolution would be able to petition a court of appropriate jurisdiction to hold an evidentiary hearing to validate the status of committee members as independent and disinterested.
There are various procedural provisions regarding this process that are beyond the scope of this alert. However, importantly, the new provision states that the court’s determination that the directors are independent and disinterested is dispositive in the absence of facts, not presented to the court, constituting evidence sufficient to prove that one or more of the directors is not independent and disinterested with respect to a particular transaction. Accordingly, the corporation may be able to avoid in subsequent litigation issues of whether directors are independent and disinterested. [Bill Sections 7 and 8; Adding TBOC Sections 21.416(g) and 21.4161.] The Bill also adds to the TBOC provisions governing shareholder derivative proceedings similar provisions that would authorize a court to make an advance dispositive determination as to whether the directors who are involved in making a decision whether to pursue a derivative action claim on behalf of the corporation are disinterested and independent. [Bill Section 13; Amending TBOC Section 21.554.]
Derivative litigation
The Bill would amend the TBOC to provide, for a Texas for-profit corporation having common shares listed on a national securities exchange or electing to be governed by the new business judgment rule provision, that a shareholder may not institute or maintain a derivative proceeding on behalf of the corporation unless the shareholder beneficially owns, at the time of instituting the derivative proceeding, a number of common shares to meet the required ownership threshold to institute a derivative proceeding in the right of the corporation as specified in the corporation’s certificate of formation or bylaws. However, that required ownership threshold may not exceed 3 percent of the corporation’s outstanding shares. [Bill Section 12; Adding TBOC Section 21.552(a)(3).] For these purposes, a “shareholder” can be a holder of record, a beneficial owner, or under a proposed amendment, two or more shareholders acting in concert. [Bill Section 11, Amending Section 21.551(2)(c).]
Disclosure-only settlements
Section 21.561 of the TBOC specifies certain circumstances in which a plaintiff’s attorneys may be awarded fees and expenses in a derivative proceeding, including the condition that the court finds the proceeding has resulted in a substantial benefit to the corporation. The Bill would amend this section of the TBOC to provide that a substantial benefit does not include “additional or amended disclosures made to shareholders, regardless of materiality.” [Bill Section 14; Adding TBOC Section 21.561(c).]
Status of Bill
The full text of SB 29 is available here. HB 15 is an identical companion bill. During the week of March 10, 2025, the Bill was heard in the Senate State Affairs Committee, which is chaired by Senator Hughes, and in the House Judiciary & Civil Jurisprudence Committee. The Bill was left pending in both Committees, and there was no significant testimony at the hearings in opposition to the Bill. Accordingly, the prospects for passage of the Bill by the Texas Legislature appear to be positive. However, the Bill has attracted a negative fiscal note from the Office of Texas Secretary of State, which estimates that the cost of implementing the amendments to TBOC Section 4.051 would be $1,752,965 for fiscal year 2026 and $513,040 annually for each fiscal year thereafter. If passed, the Bill would take effect on September 1, 2025, unless adopted by a two-thirds vote in both the Senate and House, in which case it would become immediately effective. In any case, any existing derivative proceedings would be grandfathered under pre-existing laws after the Bill’s amendments take effect.