This week we feature updates on CTA and FTC Non-Compete Rule. Read the updates carefully to comply with changing reporting requirements for CTA. We will continue to follow the trajectory of the non-compete rule. We hope this information is helpful if your practice involves these areas.

FTC NON-COMPETE RULE

An opinion in Ryan LLC, et al v Federal Trade Commission, filed on August 20, 2024, in the U.S. District Court for the Northern District of Texas ruled in the dispute over the FTC’s rulemaking authority concerning the enforceability of employer/employee non-compete agreements. The opinion by Judge Ada Brown found that the FTC exceeded its statutory authority in implementing the rule and that the rule is arbitrary and capricious. The decision granted summary judgment for plaintiffs, set aside The Non-Compete Rule, 16 C.F.R. § 910.1–.6, and  declared that it shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.

The FTC announced it is considering an appeal and will continue to look at non-compete agreements as case-by -case enforcement actions. With the recent decision by the U.S. Supreme Court in Loper Bright Enterprises, et al. v Raimondo, overruling Chevron U.S.A. Inc. and the appellate circuit court for the appeal, we will track whether the FTC files an appeal.

CTA UPDATES

FinCEN recently issued updates to Beneficial Ownership Information (BOI) on the Frequently Asked Questions tab for reporting BOI (Beneficial Ownership) under the CTA (Corporate Transparency Act). The updates impact reporting for entities that cease to exist and taxpayer identification numbers.

UPDATES FOR COMPANIES THAT CEASE TO EXIST

Update for Reporting Company FAQs answers at C. 13  Is a company required to report its beneficial ownership information to FinCEN if the company ceased to exist before reporting requirements went into effect on January 1, 2024?

• A company is not required to report its beneficial ownership information to FinCEN if it ceased to exist as a legal entity before January 1, 2024.

• A company IS required to report its beneficial ownership information to FinCEN, if it continued to exist as a legal entity for any period of time on or after January 1, 2024.
  • It would need to report if the company did not entirely complete the process of formally and irrevocably dissolving before January 1, 2024,even if the company wound up its affairs and ceased conducting business before January 1, 2024.

• A reporting company is required to report its beneficial ownership information to FinCEN, if it was created or registered on or after January 1, 2024, and subsequently ceased to exist, even if it ceased to exist before its initial beneficial ownership information report was due.

• A company administratively dissolved or suspended for failing to pay a filing fee or comply with certain jurisdictional requirements, does not cease to exist as a legal entity unless the dissolution or suspension becomes permanent.
  • The specifics of jurisdiction where the company was created or registered will determine when a company ceases to exist as a legal entity.

Another Reporting Company update answers at C. 14. If a reporting company created or registered in 2024 or later winds up its affairs and ceases to exist before its initial BOI report is due to FinCEN, is the company still required to submit that initial report?

• Reporting companies created or registered in 2024, no matter how quickly they cease to exist, must report their beneficial ownership information to FinCEN within 90 days.
• Reporting companies created or registered in 2025 or later, no matter how quickly they cease to exist thereafter, must report their beneficial ownership information to FinCEN within 30 days.
• Reporting companies that file the initial BOI report and cease to exist as legal entities before the expiration of the 30- or 90-day period reporting do not need to file an additional report with FinCEN noting that the company has ceased to exist.

Another Reporting Company question is answered at C. 15. Who may file a BOI report on behalf of a reporting company created or registered in 2024 or later that ceases to exist before its initial BOI report is due to FinCEN?

• Anyone authorized by the reporting company – employee, owner, or third-party service provider—may file a BOI report on the reporting company’s behalf, even the company ceases to exist.
• If a reporting company will cease to exist before the expiration of the 30- or 90-day period to file it should arrange to have the report filed, even if the filing does not occur until after the reporting company ceases to exist.
• The BOI report must be filed by the time such report is due to FinCEN, regardless of company status.

Foreign company reporting is answered at C. 16. Is a foreign company required to report its beneficial ownership information to FinCEN if the company stopped doing business in the United States before reporting requirements went into effect on January 1, 2024?

• A foreign company is not required to report its beneficial ownership information to FinCEN if it ceased to be registered to do business in the United States before January 1, 2024.
• A foreign reporting company IS required to report its beneficial ownership information to FinCEN, if it was registered to do business in the United States on or after January 1, 2024 for any period of time.
  • It would need to report if the company did not entirely complete the process of withdrawing its registration before January 1, 2024, even if the company had wound up its affairs and ceased conducting business before January 1, 2024.
• A foreign reporting company is required to report its beneficial ownership information to FinCEN if it was registered to do business in the United States on or after January 1, 2024, for any period of time, and subsequently withdrew that registration, even if it withdrew the registration before the expiration of the 30- or 90-day period.
• A foreign company that is administratively suspended from conducting business does not cease to be registered to conduct business unless the suspension becomes permanent.
  • The specifics of jurisdiction where the company was registered will determine when a company withdraws its registration to do business.

A related update to the Initial Report FAQs answered at G. 4. Should an initial BOI report include historical beneficial owners of a reporting company, or only beneficial owners as of the time of filing?

• An initial BOI report should only include the beneficial owners as of the time of the filing. Reporting companies should notify FinCEN of changes to beneficial owners and related BOI through updated reports.

• If no one submits the initial BOI for a reporting company created or registered in 2024 or later for a company that ceases to exist before the expiration of the 30- or 90-day period, until after the company ceases to exist, the BOI should reflect the beneficial ownership information accurate as of the moment prior to the reporting company ceasing to exist.

• The FAQ notes that FinCEN’s Small Entity Compliance Guide includes more information about when to file updated or corrected BOI reports in Chapter 6, “What if there are changes to or inaccuracies in reported information?”

UPDATES ON TAX INDENTIFICATION NUMBERS

The first update answered Reporting Requirements at F. 13 What type of tax identification number should be reported by a reporting company that is disregarded for U.S. tax purposes?

• A “disregarded entity” is defined as an entity that is disregarded for U.S. tax purposes.
  • It is not taxed separately and the entity’s owner reports the disregarded entity’s income and deductions as part of the owner’s federal tax return.

• If a disregarded entity is a reporting company and If it has been issued a TIN, it must provide one of these types of taxpayer identification numbers (TINs) on its BOI:
  • an Employer Identification Number (EIN)
  • a Social Security Number (SSN0)
  • an Individual Taxpayer Identification Number (ITIN).

• If a foreign reporting company has not been issued a TIN, it must provide a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

The second update explained an Initial Report at G. 3. How can I obtain a tax identification number for a new company quickly so that I can file an initial beneficial ownership information report on time?

• A reporting company must provide one of the following types of taxpayer identification numbers (TINs) on its BOI report if it has been issued a TIN:
  • an Employer Identification Number (EIN)
  • a Social Security Number (SSN)
  • or an Individual Taxpayer Identification Number (ITIN).
• If a foreign reporting company has not been issued a TIN, it must provide a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.
• The Internal Revenue Service (IRS) offers a free online application for an EIN, provided immediately upon submission of the application. See “Taxpayer Identification Numbers (TIN)” at IRS.gov (https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin).
• If a reporting company with no other tax identification number is not be able to obtain its EIN by its BOI report filing deadline, the reporting company should:
  • Make all reasonable efforts to file its BOI report in a timely manner, including requesting all necessary information as early as practicable
  • file its report as soon as it receives its EIN
  • retain documentation associated with its efforts to comply with the BOI reporting requirements in a timely manner, as a best practice.

In addition to these updates, FinCEN has posted YouTube videos including Five Minute Demo:How to File a Beneficial Ownership Information (BOI) Report. If you would like to receive the link to the in-depth OBLIC CTA video, please contact us.

As always, feel free to contact us if you have questions or comments. We’re here to help!

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