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Corporate Transparency Act Penalties and Deadlines

Corporate Transparency Act Penalties & Deadlines

 The Corporate Transparency Act (or CTA) is a new law that very few people are talking about. It took effect on January 1st of this year, and it requires most small businesses to report personal, non-economic information to the Financial Crimes Enforcement Network (or FinCEN).

And if you don’t report this information, you can face very steep consequences.

 

What Are the Penalties for Not Filing?

If you don’t submit these reports to FinCEN, you can face penalties that include $10,000 in fines and/or 2 years in jail.

And even with these significant penalties, there has been no serious effort to educate people about the CTA. In fact, many business owners and real estate investors have been left in the dark.

The easiest way to avoid these penalties is to submit these FinCEN reports as soon as possible. And the timing to submit these reports depends upon when the entity was formed.

 

When to File the FinCEN Reports

So, when exactly are these reports due? The timing to file them depends upon when your company was formed.

    • If your reporting company was formed before January 1st, 2024, you have one year (or until December 31st, 2024) to report your information to FinCEN.
    • If your reporting company was formed between January 1st, 2024 and December 31st, 2024, you have 90 days to report your information to FinCEN.
    • If your reporting company was formed after January 1st, 2025, you only have 30 days to report your information to FinCEN.
    • When your reporting company has a change in ownership, a new mailing address, or someone discovers an error in a previous report, you only have 30 days to file the corrected reports.

 

It is best practice to get these reports in as soon as possible. In fact, if you formed a company in the first few months of 2024, these reports have already come due.

And if you don’t want to submit these reports, we here at Corporate Direct can report this information for you. For more information on the CTA and its reporting requirements, you can schedule a free 15-minute consultation with one of our incorporating specialists by clicking the link here: https://corporatedirect.com/schedule/

 

 

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Direct Answers 1

 

Texas: The New Hotbed For Business?

Texas: The New Hotbed For Business?

By: Ted Sutton, Esq.

 

In the business realm, Texas has become the lone star that is burning brighter. And it may become a top state for business in the near future.

 

They say that everything’s larger in Texas. This also includes a larger demand to form a business in the Lone Star State. Forming a business in Texas has become a popular alternative to other larger states like California and New York. Given its thriving economy and a favorable tax climate, Texas has seen an increase in new LLC formations.

 

These formations may increase further. Under the recently-passed Senate Bill 2314, Texas now recognizes the charging order as the exclusive remedy for both single-member and multi-member LLCs.

 

The charging order apples when an LLC member is personally sued and loses in court. But in order for the lawsuit winner to collect anything from the LLC, they must wait until any distributions are made from it. So, if no distributions are made, then the winner doesn’t collect anything from the LLC. This is true, even if the loser is the only member of the LLC. This new law takes effect on September 1, 2023.

 

This new law overrules Devoll v. Demonbreaun, a 2016 Texas Court of Appeals case[1]. Devoll held that the charging order was not the exclusive remedy, even if it was charged against an LLC’s membership interest. This new Senate Bill changes this outcome. Now Texas LLC owners are better protected in the event they are personally sued.

 

On top of this, Texas has also just formed the Texas Business Court. Similar to the Delaware Court of Chancery, this new court system will handle corporate disputes and complex litigation matters. Texas will eventually set up these courts in Austin, Dallas, Fort Worth, Houston, and San Antonio. This court will help expedite lawsuits and provide case law to resolve these disputes. But most importantly, this will attract even more business to the state. These new courts are set to start on September 1, 2024.

 

Another thing Texas has is its large population and rapid population growth. Currently, Texas is the second largest state with 30 million people. And since 2010, Texas has had the third-fastest growth of any state at a whopping 20%. Given these recent trends, it could take that top spot in the not-too-distant future.

 

Could Texas overtake Delaware and Wyoming as the best state for businesses? Only time will tell. However, these recent developments show that it may be possible.

_______________________________

[1] Devoll v. Demonbreun, No. 04-14-00331-CV (Tex. App. Aug. 31, 2016).

 

 

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Can Emails Create a Binding Contract?

Joe exchanged emails with Mary. They were investigating whether Joe wanted a consignment of Mary’s embroidered toilet seat covers for Joe’s hardware store. The email conversation trailed off and Joe went on to other things.

Two days later, to Joe’s surprise, the toilet seat covers arrived.

Instead of emailing, Joe immediately called Mary.

“Why did you send these over?”

Because we have a contract” said Mary.

“No we don’t,” said Joe. “We only have a string of emails

“Which created a contract,” said Mary. “Aren’t you up on the new laws?”

Joe ended his conversation with Mary and called Hank, his attorney. After laying out the scenario, Hank told Joe what was happening in the world of emails.

“To create a contract,” said Hank, “you need to meet four elements. You must have offer, acceptance, mutual obligation or valuable consideration and capacity to contract. While I haven’t read the emails, courts are now saying that you can piece together the strings of an email conversation to find all of those elements.”

“But,” said Joe, “I didn’t sign a contract.”

“You don’t need ink anymore,” said Hank. “There’s a recent Texas case saying that the name or email address in the ‘from’ field satisfies federal law for a signature under the Uniform Electronic Transactions Act.”

Joe was exasperated. “That’s enough to create a contract?”

“In that case it was. Do you put your stylized signature at the end of your emails?”

“Yes. My web guy says it makes the emails look more personal.”

“And more binding. Some cases have looked to that as a binding signature, even for real estate contracts.”

“What do I do?”

Hank laughed. “I’m not going to charge you $5,000 to settle a $1,500 dispute. Just sell the merchandise and never do business with Mary again.”

“But for the future?” asked Joe.

“Today,” said Hank, “talk to your web guy. Tell them to change your name to block letters, so that it looks less similar to a real signature.”

“Anything else?”

“Yes,” said Hank. “Tell them to add this disclaimer to the language at the end of your emails:

The content of any and all communications from this email address shall not be interpreted as an enforceable offer or acceptance and shall not form the basis for a binding contract.

“Okay,” said Joe. “Thanks. Seems like this has become an issue.”

“Exactly,” said Hank. “Especially for my real estate clients. In real estate transactions the Statute of Frauds requires a signature for an enforceable contract. Some courts are holding that a purposely typed email signature now satisfies that requirement.”

“It’s a brave new world.”

Hank agreed. “Everyone needs to be careful.”

The Lesson: Beware of email conversations that create a contract and use disclaimer language to prevent contract formation. When negotiating terms via email, make it clear in the beginning that the email exchange is for discussion purposes only and that all communications are non-binding until the parties fully execute a formal contract.

Beyond including disclaimers, there are a few other things that you should keep in mind when communicating by email. Along with piecing together emails and ruling that emails can constitute a contract, some courts have also deemed certain emails as amendments or waivers to an existing contract. It should be expressly stated in your contracts that emails are not qualified to amend or waive any terms of the contract. Also, be sure to stay away from contractual language in your email conversations. Avoid using words like “agree,” “accept” and/or “offer”.

It may be helpful to remember that a signature is not needed to create a valid contract – there need only be offer, acceptance, consideration and capacity. Although a signature is the most common form of acceptance, that element can be proven in other ways. If all of the four elements can be proven, the lack of a signature alone may not be a sufficient argument of non-acceptance.

On the other hand, emails can be a quicker and more efficient way to create and/or amend contract terms. If you are comfortable doing business in that manner, it is acceptable to do so. The most important thing either way is that you know from the outset how you would like to conduct business and immediately make that clear to all parties involved.

Black Swan Events and Force Majeure Clauses

Force Majeure is a French term meaning superior force. It is also a contract clause that relieves parties from performance when an extraordinary event occurs. Such challenges, known as ‘black swan’ events or generically ‘Acts of God’, may be mitigated by a force majeure clause acknowledging that contracts can’t be fulfilled when issues are outside of everyone’s control.

Did the Coronavirus arise from bat soup in a filthy, fetid wild animal market? Or was it accidentally leaked from China’s national biology lab in Wuhan? It doesn’t really matter. It is a superior force that was not foreseeable. (Although some would argue that with so many novel infectious diseases arising over the last 20 years, epidemics should now be expected).

With that last thought in mind, going forward, you should work with your attorney to include specific force majeure provisions in your contracts. A well drafted clause may excuse performance during events that are beyond the reasonable control of the parties. These can include acts of terrorism, labor shortages and strikes, new government regulations, fire and floods. Events such as epidemics, pandemics, biological outbreaks and wide spread illness should now also be incorporated into force majeure clauses.

What if your current contract does not include such language or the event doesn’t trigger a force majeure clause? Your fall back position is the doctrine of “frustration of purpose.” This doctrine can excuse contractual performance if events have now made it impossible to perform, or the central purpose of the contract has been frustrated due to unforeseeable events. However, Courts do not favor upending contracts under this doctrine. You are better off relying on a well drafted force majeure clause.

It is interesting to note that a Chinese agency is issuing force majeure certificates to local companies unable to perform on their contracts due to the Coronavirus challenge. It would be nice to just wave a certificate and make all the issues go away. But in the United States and other common law countries, force majeure is a question of fact for the Court. Was the event reasonably foreseeable? Were any notice provisions complied with? Does prior case law shed any light on the current situation? These are all facts to be considered. A government certificate won’t work here.

Still, your Chinese counterpart is probably struggling even more than you are. Is litigation even advisable? And if so, could you even collect?

The bigger issue for everyone is to understand the nature and need for force majeure clauses in your contracts. Well, that and the need for alternate sources of supply outside of China.

The End-of-Year Legal Audit You Can’t Afford to Skip

“An ounce of prevention is worth a pound of cure” – Benjamin Franklin

Benjamin Franklin’s famous words were written to advance fire safety. Shortly thereafter, in December of 1736, the Union Fire Company was formed and Philadelphia became the safest city in the colonies.

Then, as now, survival does not allow for rest. The survival of any organization requires being prepared, organized and ready to respond. Set into this milieu comes the rise of the legal audit. As businesses look for ways to reduce their exposure to risk as well as comply with the onslaught of new regulations, an annual review with the company’s attorney and insurance broker is ever more a feature of proper corporate governance.

What is covered in an annual legal audit?

Some of the items will be specific to the company and the industry they are within. For example, the audit for a vegetarian restaurant will be different than that of a veterinarian practice. But the following common key areas should be reviewed by all businesses in an annual audit:

1. Structure

Corporations, LLCs and other business entities should hold annual meetings and memorialize the proceedings in the form of minutes. If you haven’t followed this important corporate formality, corporate cleanup services are available. The minute book containing key corporate documents should be kept up to date. This will be crucial in the event of a surprise IRS audit. It is also good practice for avoiding a piercing of the corporate veil and the imposition of personal lability for corporate debts.

2. Directors/Managers

The corporate directors or LLC managers should be properly listed with the state of formation (and qualification). Failure to stay current could mean that certain company decisions may be voidable. The lines of authority should be respected and maintained as a matter of proper governance.

3. Intellectual Property

An audit can uncover the need for trademark, patent, copyright and/or trade secret protection. Asserting and maintaining intellectual property rights is a key business strategy that can lead to the creation of valuable company assets. An annual review of these issues is not only prudent, but vital to the company’s future.

4. Employment

In the crush of commerce many things can slip by unnoticed. Did you hire a few new people this year? Did they sign employment agreements? Do you have the protections in place involving trade secrets, non-solicitation, non-competition and confidentiality? A legal audit will identify any gaps. If you need any standard legal templates, we offer 135 legal forms and contracts here.

An annual audit can also reveal if all the required postings and workplace paperwork is in order. Have you properly posted the EEO and minimum wage notices? These seemingly benign matters come with penalties for non-compliance.

If you have an employee handbook do any of the policies require revision? Your company attorney may not pursue this important issue. Likely, they are too busy to even ask. It is up to you to handle it.

5. Insurance

An annual insurance review is always recommended. Is your existing insurance adequate for your ever changing business and the market in which you operate? If your business is expanding is your current insurance at the right level to cover your increasing risks?

Since almost every business has some sort of internet presence nowadays you must analyze if you need the newest form of protection – cyber liability insurance. If you accept orders over the web, if you store any customer records electronically, or if you have any interface at all with the internet you must consider cyber liability insurance. With all the hacking and illegal activity associated with electronic records this issue must be discussed in your next insurance review.

The ounce of prevention a legal audit will provide can save many thousands of dollars in legal and other unnecessary costs when an identifiable issue becomes a major problem. Work with your attorney and insurance broker this year and every year to put out the fires before they harm the entire organization.

P.S. Not sure if your company is protecting you as it should? Get an evaluation by an expert. Get a Corporate Cleanup.