 By Attorney Kelly Jesson
We are writing to clarify the status of the Corporate Transparency Act since there was a lot of activity over the holidays! On December 23, 2024, the Fifth Circuit Court of Appeals granted FinCEN’s emergency motion for a stay of the Texas federal court’s order enjoining the Corporate Transparency Act. Immediately, FinCEN came out with a press release outlining the due dates for Beneficial Owner Report filings. Social media and inboxes were filled with warnings and panic. However, after an emergency rehearing en banc on December 26 (these lawyers and judges took no holiday leave apparently!), the Fifth Circuit again entered an order allowing for the injunction to continue while the case is litigated. What does this mean for you? Until there is an official ruling on the constitutionality of the Corporate Transparency Act, no Beneficial Owner Reports are required to be filed.
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 By Attorney Kelly Jesson
If you don’t know what The Corporate Transparency Act is, you can read about it here and here. We had been hopeful all year that it would be invalidated, and we had intentionally waited until the end of the year to file the Beneficial Owner Information Reports (“BOIR”) on behalf of our clients. In the past few weeks, we have been working on getting the BOIRs done since the deadline is less than a month away and we were beginning to lose hope. Alas, our prayers were answered yesterday! A federal judge in Texas has issued a preliminary injunction blocking enforcement of the requirement to report the beneficial owners of businesses because the law is “likely unconstitutional.” The order states that companies nationwide do not need to comply with the Jan. 1 reporting deadline unless and until a higher court reverses the order. What does this mean for you? For now, there’s no need to report. But we do need to continue to watch this situation, as the law will surely be litigated in the future. We probably have not heard the last of the Corporate Transparency Act.  By Attorney Kelly Jesson
We previously reported back in April that the Federal Trade Commission (“FTC”) banned non-compete agreements effective September 4. Almost immediately, the rule was challenged in many courts. Earlier this week, a federal judge in Dallas struck down the ban across the entire nation, holding that it was “unreasonably overbroad” and the FTC lacked the authority to enact the rule. Therefore, local business owners can continue to utilize non-compete agreements to protect their proprietary information when an employee with insider knowledge leaves to work elsewhere. However, our courts will not enforce a non-compete agreement that is not narrowly tailored in scope and geographical area to accomplish that goal, so business owners should seek the assistance of an attorney when putting these in place. If you have any questions, or need assistance with an employment agreement, please give Jesson & Rains a call!  By Attorney Kelly Jesson
The Supreme Court has issued many newsworthy rulings recently, but one you might not be familiar with is the Connelly Case. In Connelly v. United States, the Supreme Court held that the value of life insurance proceeds paid out to a business after the death of one of its owners must be included in the date of death valuation of the business. For the past twenty years, life insurance paid to a business as the result of an owner’s death has not been included in the business valuation if the business had an obligation to purchase the deceased owner’s interest in the business back. The reasoning was that this was a liability that the business owed. If a business was paid $3 million dollars in life insurance but it was obligated to pay the deceased owner’s family $3 million dollars, then it’s a wash. The implications of this ruling are significant. A business that is the beneficiary of life insurance proceeds may be valued much higher than it “really” is. For example, let’s say there are two owners of Widget Corp. The business is worth $5 million, so the owners each had $2.5 million dollars in insurance taken out by the corporation. At the death of one of the owners, the corporation was to redeem the deceased owner’s shares, which were worth $2.5 million prior to death. After the Supreme Court ruling, the business is actually worth $7.5 million ($5 million + life insurance). If the agreement was to pay half the value, the corporation would owe the family $3.75 million but only have $2.5 million in cash to do so. For people who may have to pay estate taxes (oftentimes business owners!), the difference in a few million dollar valuation can result in huge tax payments. And to add insult to injury, the family could end up paying taxes on assets they didn’t really get. In the above example, the true value of the business interests was $2.5 million but they would have to pay tax on the $3.75 million valuation if it was a taxable estate. The ruling requires business owners to carefully review their buy-sell and operating agreements to see how valuations will be determined. Is it the date of death value, or the value put on the business at the beginning of the year, or the value of the life insurance? While you can’t exclude life insurance for IRS purposes, you may be able to for buy-out valuation purposes. One way around this ruling is to use cross-purchase agreements. Instead of the business owning the life insurance policy, the individual owners will own life insurance policies on each other. When one owner dies, the life insurance is paid out to the other owners, not the business. Also, more people may utilize LLCs to own life insurance policies. The problem with cross-purchase agreements is that if you have a lot of owners, you have a lot of policies. If there are three owners, for example, there are six policies. If you set up an LLC to own the insurance policies (and then the LLC uses the money to buy the deceased owner’s interest), there are fewer policies. In this example, there would be three instead of six. If you would like additional information, or if you need a review of your business’s insurance and operating agreements, please don’t hesitate to contact the attorneys at Jesson & Rains.  By Attorney Edward Jesson
A question we frequently get from business owners, small and large alike, is whether they need to register their business in other states. The answer is, as usual, “it depends.” The process of registering your business in another state is often referred to as “Foreign Qualification”. While the laws vary from state to state, the following is a very general guide to whether you need to go through the foreign qualification process for your business. First of all, depending on the state, there can be serious ramifications for not registering your business in a specific state in which you are doing business. These can range from financial penalties to losing your business’s limited liability status, exposing you, as the individual owner, to liability in that state. In some states, it can also mean that, if your business is not properly qualified to do business in that state, your business is not permitted to bring legal action in that state. For example, if your business wished to enforce a contract in court in a state in where your business is not properly registered, your business may not be able to bring that lawsuit. To determine whether you need to go through the foreign qualification process, the important question you must ask yourself is whether your business is “doing business” in that state. Again, the rules on this from state to state vary, but there are some general things to look out for when asking yourself that question:
If you have questions about doing business with your LLC or corporation in another state, the attorneys at Jesson & Rains can assist you.  By Associate Attorney Danielle Nodar
When a business is formed and registered with the North Carolina Secretary of State’s Office, the business must comply with certain filings in order to remain in good standing and able to do business in the state. Scammers are aware of these requirements and target North Carolina business owners through the mail. These mailings may look like official government documents, and they quote statutes, cite scary penalties, and prompt the business to pay a fee for a certain “required” form. One misleading mailing comes from C.F.S., a Michigan company that sends a solicitation for preparation and filing of 2022 annual reports for a fee of $295. The solicitation indicates that the company is not affiliated with the NC Secretary of State and that the annual report may be filed directly by the business owner with the NC Secretary of State’s Office. However, if you are not careful, you may pay a company for a service that you can complete yourself. Businesses can file their annual report themselves and pay a fee of $200 directly to the NC Secretary of State. Another scheme targeting new business owners is from a company called NC Certificate Service, which mails out a form requesting businesses to order an NC Secretary of State Certificate of Existence for $82. However, there is no state requirement that each registered business entity obtain an annual Certificate of Existence. A Certificate of Existence is only required if a business does business in another state and can be ordered by the business directly from the NC Secretary of State for $15.00 or less. Finally, another mailing scheme comes from Annual Minutes Filing Services, LLC, also based out of North Carolina, offering to prepare annual minutes to business entities in North Carolina for a fee of $159. The mailing indicates that the company is not affiliated with any government agency in North Carolina but fails to mention that meeting minutes for a company are internal documents that are not required to be filed with the Secretary of State. There are ways you can protect yourself when receiving a document requesting additional filings or fees for your business. First, always read the fine print. These mailers often come from private companies that have no affiliation with the North Carolina Secretary of State or other government agency, and many are from out of state. Also, some mailings may indicate that you are not obligated to obtain the services to meet North Carolina’s requirements for your business. Do not blindly mail in a check when you receive mail like this. Read it carefully. Contact your attorney or the Secretary of State’s office if you are concerned about a required form your business receives in the mail. |
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