Corporate Transparency Act: Reporting Challenges for Foreign-Owned Companies

Corporate Transparency Act: Reporting Challenges for Foreign-Owned Companies
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On January 1, 2024, the beneficial ownership information reporting rule (BOI Rule) issued under the Corporate Transparency Act (CTA) came into effect, ushering in new reporting requirements for companies formed in the U.S. or registered to do business in the U.S. (collectively, reporting companies). 

The CTA and BOI Rule require the collection and disclosure of information identifying the individuals who beneficially own or exercise substantial control over reporting companies. While this task will be a burden for all types of reporting companies, the CTA and BOI Rule pose unique challenges for some foreign-owned companies, which often have complicated beneficial ownership structures, regular changes to management teams, a strong commitment to compliance measures, and a desire to avoid corporate liability and personal liability for members of their management team.

New CTA Reporting Requirements

As explained in a prior advisory, the new beneficial ownership information (BOI) reports will include: (a) for the reporting company, the name, trade name, address and employer identification number (EIN) or taxpayer identification number (TIN) of the reporting company; (b) for each individual who beneficially owns or controls 25% or more of the equity of the reporting company or exercises substantial control over the reporting company (each, a beneficial owner), his or her full legal name, date of birth, complete U.S. residential address, and information from (along with an image of) the individual’s unexpired U.S. passport, state driver’s license or other government-issued identification document; and (c) for certain individuals responsible for the formation of a reporting company on or after January 1, 2024, similar information to that required of beneficial owners.

The CTA and BOI Rule require reporting companies formed or registered to do business in the U.S. on or after January 1, 2024 to file a BOI report with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury within 90 days of its formation or registration (or, if formed or registered to do business in the U.S. on or after January 1, 2025, within 30 days of its formation). Reporting companies formed or registered to do business in the U.S. prior to January 1, 2024 receive a slight reprieve – they need to file a BOI report on or before January 1, 2025.

Once a reporting company has filed an initial BOI report, it must file an updated BOI report within 30 days of any change in the information required to be reported to FinCEN, including changes to reported BOI.

Limited Exemptions for Foreign-Owned Companies

The CTA includes 23 exemptions from the BOI reporting requirements; however, only a handful of them are likely to apply to foreign-owned companies, including the following:

Large Operating Company

Entities that directly employ more than 20 full time employees in the U.S., have an operating presence at a physical office in the U.S., and have filed a federal income tax return or information return demonstrating more than $5 million in gross receipts or sales from sources within the U.S. are classified as “large operating companies” and are exempt from BOI reporting. However, any failure to maintain employment or revenue figures will trigger filing requirements. Additionally, the company will need to be the owner or lessee of real property in the U.S., distinct from unaffiliated businesses, at which it conducts business to satisfy the “physical office” requirement—post office boxes and registered agent addresses will not suffice.

Publicly-Traded Company

Entities that have issued securities registered under Section 12 of the Securities Exchange Act of 1934 (1934 Act) or that are required to file supplementary and periodic information under Section 15(d) of the 1934 Act are exempt; however, this exemption will not cover entities that are listed only on a foreign exchange that do not have reporting obligations under the 1934 Act.

Subsidiary of Exempt Company

Entities whose ownership interests are entirely controlled or wholly owned, directly or indirectly, by certain enumerated exempt entities are themselves exempt, meaning that if a qualifying parent company is exempt, its subsidiaries may also avoid reporting requirements.

Importantly, no “upward” exemption to BOI reporting requirements exists for holding companies.

Reporting Challenges for Foreign-Owned Companies

Foreign-owned reporting companies that are not eligible for an exemption should keep the following issues in mind as they work with advisors to build a compliance plan for CTA reporting:

Analyzing all Members of Corporate Family

Foreign companies often establish a U.S. corporate presence by creating a holding company organized under the laws of Delaware or another U.S. state, with operations conducted through one or more subsidiaries. A compliance plan will be necessary for each entity formed under the laws of a U.S. state or registered to do business in a U.S. state to ensure that it is either exempt or that proper measures have been taken to comply with reporting requirements. Because privately held holding companies do not qualify for an exemption, reporting may be required at that level even if operating entities lower in the family tree are exempt as a “large operating company” or (for lower-tier entities) a “subsidiary” of any large operating company.

Monitoring Triggers for Updates

  1. Some foreign-owned companies rotate executives through director, officer and managerial roles with their U.S. subsidiaries after a limited period of time. These changes will trigger requirements to file updated BOI reports within 30 days of the change. Further, regular changes in U.S. leadership underline the importance of having a compliance plan in place for incoming executives to ensure that all necessary updates to BOI reports are timely filed.
  2. For purposes of filing BOI reports, beneficial ownership of equity is reported by looking through legal entities to identify individual owners or controllers of equity. Changes to a capitalization table of a parent entity organized and operating entirely outside of the U.S. may therefore trigger an obligation to file an updated BOI report in this country.

Inactive Entities

Foreign companies may own U.S. subsidiaries that were previously active but no longer conduct substantial business. While there is an exemption from reporting requirements for certain inactive entities, it is not available to companies owned by foreign persons. Owners of inactive entities should consider dissolving these entities prior to the deadline of any BOI report to avoid incurring reporting obligations or penalties for non-compliance.

Data Protection and Confidentiality

Reporting companies should consider how they will comply with data protection obligations and confidentiality requirements associated with the collection of personally identifiable information gathered pursuant to the CTA. It may be beneficial to designate a third-party provider to collect and store this information or direct persons to obtain a FinCEN identifier to mitigate risks associated with data protection, which can be costly. Companies may also need to consult local counsel in certain foreign jurisdictions to ensure that the collection and transmission of sensitive data from persons outside the U.S. is conducted in accordance with local law.

Access to Information for Disclosure

Foreign-owned reporting companies should consider including language in their formation and governance documents, employment agreements and employee handbooks that requires individuals to provide information necessary to facilitate CTA compliance. As changes to ownership of foreign parents may trigger update reporting obligations, similar measures may need to be considered with respect to parent companies. The reporting company should be prepared to take action to compel such disclosure, where possible, to avoid liability to the company and personal liability to senior officers.

Penalties for Non-Compliance; Personal Liability for Senior Officers

Those who disregard the CTA may be subject to civil and criminal penalties. A person who willfully fails to file a correct and complete initial BOI report or an updated BOI report required by law is subject to a fine of $500 per day (up to a maximum fine of $10,000) and is subject to imprisonment for up to two years.  FinCEN has stated that senior officers of entities that willfully violate the CTA and BOI Rule may be held liable under these penalty provisions.

Varnum’s Corporate Transparency Act Taskforce of attorneys and other professionals can assist you. Contact Greg Wright of our Business and Corporate practice team, any member of Varnum’s CTA Taskforce, or your Varnum attorney to learn more.

 

 

Under the Regulatory Microscope: Private Investment in Health Care-Related Entities

Trends and Developments Impacting Health Care Investing

Although ownership and control of health care providers engaged in the practice of medicine has traditionally been limited to either non-profit enterprises or licensed medical professionals (and their regulated, professional enterprises), the industry in recent decades has seen an escalating infusion of capital from enterprises including private equity firms, and business structures have been created to accommodate funding from non-licensed, for-profit entities. Given the continued for-profit commercialization of health care and its $4 trillion plus market share, it is unlikely such private investment in the health care ecosystem will voluntarily slow in the foreseeable future.

Recent calls for greater regulatory scrutiny of such investments in certain health care-related entities, such as medical practices and health care systems, further complicate the already complex regulatory landscape for for-profit health care enterprises, their owners and medical professionals.

Michigan Medical Group Asks Michigan Attorney General to Investigate Ownership of For-Profit Health Care Organizations

The Michigan State Medical Society, which represents thousands of Michigan physicians, recently sent a letter to Michigan Attorney General Dana Nessel asking her to investigate what it argues are “widespread violations” of Michigan’s Corporate Practice of Medicine doctrine. The Attorney General’s office stated that it is reviewing the allegations and determining if and how to proceed. Whether the Attorney General initiates a widespread investigation of certain health care organizations’ compliance with the Michigan Corporate Practice of Medicine doctrine remains to be seen.

Michigan Corporate Practice of Medicine Doctrine: The Basics

Michigan’s Corporate Practice of Medicine doctrine, as explained in more detail in this advisory, prohibits unlicensed individuals from owning entities that engage in the practice of medicine in Michigan. Put differently, most entities intending to operate a medical practice must generally be owned by individuals who hold a license to practice medicine. While there is a recognized doctrinal exception enabling non-profit health care entities, such as certain health care systems, to employ licensed individuals providing medical care, there is no such exception permitting private equity firms and other for-profit entities that are owned by non-licensed persons from owning Michigan medical practices. The basic policy rationale animating this legal principle, which the Michigan State Medical Society highlighted in its letter to the Attorney General, is that patients are best served when medical decisions are made by licensed medical professionals.

Sophisticated Structuring: The Use of Management Service Organizations

The Michigan State Medical Society argues in its letter that in part through their unique use of management service organizations (MSOs), private equity firms circumvent Michigan’s Corporate Practice of Medicine doctrine. MSOs, a separately established entity from the medical practice, are a common structuring device that are established to contract with the medical practice to provide non-medical administrative and management services. Frequently, in private equity acquisitions of businesses involved in medical practices, the private equity firm establishes an MSO that it wholly owns. In recognition of the requirements of the Michigan Corporate Practice of Medicine doctrine, the licensed individuals retain ownership of the professional entity that functions as the operating medical practice engaged in the practice of medicine while the MSO manages the business aspects of the medical practice. In effect, the management contract vests MSOs with management rights over the business of the medical practice.

Federal Regulator Challenges Private Equity Fund’s Health Care Roll-Ups

Investments in certain health care-related entities by private equity firms and other unlicensed individual investors has also garnered recent attention from federal regulators. On September 1, 2023, the Federal Trade Commission (FTC) initiated a suit against U.S. Anesthesia Partners, the leading provider of anesthesiology services in Texas, and Welsh Carson, a private equity firm that founded U.S. Anesthesia Partners. The FTC alleges Welsh Carson’s roll-up acquisition strategy aimed at consolidating anesthesiology services in Texas to profit from various synergies violates The Clayton Antitrust Act of 1914 and Federal Trade Commission Act of 1914, both antitrust laws designed to halt anticompetitive practices. Lina Khan, the chair of the FTC, explained “[t]he FTC will continue to scrutinize and challenge serial acquisitions, roll-ups, and other stealth consolidation schemes that unlawfully undermine fair competition and harm the American public.”

Both licensed medical professionals considering selling their practice and unlicensed investors, including private equity firms, considering investing in the health care sector, should carefully review these latest regulatory developments.

For assistance navigating the evolving regulatory landscape and ensuring your MSOs are compliant with applicable laws, contact a member of Varnum’s Health Care Team.

NCAA Changes Stance on Punishment for NIL Violations

NCAA Imposes Major Sanctions on Florida State University for NIL Violations

The NCAA Imposes Level II Sanctions on Florida State University for Impermissible Activity with Collective

Last week, the NCAA announced that it will impose significant sanctions against Florida State University’s (FSU) football team regarding name, image, and likeness (NIL) violations committed during the 2022-23 academic year. The sanctions are in response to evidence that an FSU assistant coach impermissibly facilitated and transported a prospective student-athlete and his family to meet with a booster, who is also affiliated with the program’s NIL collective. The NCAA stated that the assistant coach “provided false or misleading information about his knowledge of any involvement in the violations,” which ultimately increased the severity of the punishment.

In response, the NCAA announced extensive level-II sanctions against FSU, including:

  • Two years of probation, from January 2024 – January 2026;

  • A requirement to disassociate with the collective involved in the allegations for one year (although the collective may still work with FSU athletes, the university itself cannot be involved);

  • A three-year disassociation from the booster involved;

  • A prohibition on recruiting communication for six weeks over the next two academic years, including the week of January 12-18, 2024;

  • A prohibition on communication with athletes in the transfer portal from April 15-21, 2024;

  • A $5,000 fine plus 1% of the football budget;

  • A 5% reduction in football scholarships over the two-year probationary period, amounting to a total reduction of five scholarships;

  • A reduction in the number of in-person recruiting days during the 2023-24 academic year by six evaluation days during fall 2023 and 18 during spring 2024; and

  • A reduction in football recruiting communications for a total of six weeks during the 2023-24 and 2024-25 academic years.

Additionally, the NCAA announced the following sanctions against the assistant coach involved:

  • A two-year show-cause (meaning, if the position coach is hired at another school, that school must explain to the NCAA its choice to hire the coach);

  • A 3-game suspension (to be imposed for the first three games of the 2024 regular season); and

  • A restriction from off-campus recruiting.

Despite the NCAA’s previous hesitancy to harshly penalize member schools for NIL violations, these sanctions may indicate a shift in the NCAA’s approach, and its willingness to penalize schools that violate NIL related rules. Interested parties should contact Varnum’s NIL Practice Team to ensure they are in compliance with applicable NCAA, state, and institutional regulations.

Name, Image, and Likeness in the Spotlight at the 2024 NCAA Convention

New Rules on Name Image and Likeness: A Game-Changer for Student-Athletes

The Division I Council unanimously voted to adopt new rules regarding name, image, and likeness (NIL) at the 2024 NCAA Convention in Phoenix last week. These new rules are primarily aimed at enhancing protections for student-athletes involved in NIL opportunities. The rules, which take effect August 1st, include four elements:

  • Disclosure requirements: Student-athletes will now be required to disclose certain details of all NIL agreements exceeding $600, no later than 30 days after entering or signing the NIL agreement. Additionally, prospective student-athletes will also be required to disclose these details within 30 days of enrollment. This data will be deidentified and provided to the NCAA, who will then use the information to create a database so interested parties can better monitor NIL trends.
  • Voluntary registration: In an effort to create a centralized location for all NIL service providers (i.e., agents, financial advisors, etc.), the NCAA will create a voluntary registration process for all providers seeking to work with student-athletes. The goal of this centralized portal is to help guide student-athletes and provide them with a list of credible providers as they engage in NIL opportunities and representation. The NCAA plans to develop a committee that will monitor this registration process and ensure the needs of student-athletes are met.
  • Standardized contracts: The NCAA aims to provide student-athletes with education on NIL contractual obligations. Accordingly, the NCAA plans to develop a template contract and standard contract terms.
  • Comprehensive NIL education: The NCAA also aims to develop ongoing education and resources for student athletes on NIL policies, rules, and best practices.

According to the vice chair of the Division I Student-Athlete Advisory Committee, these rules will give student-athletes more confidence as they seek NIL opportunities.

In addition to the aforementioned adopted proposal, the Division I Council also introduced additional proposals at the recommendation of the NIL Working Group and other stakeholders. Although these proposals would not take effect until at least April, after members and stakeholders are given a chance to provide feedback, the proposals include:

  • School support of NIL activities: The proposals would remove national restrictions pertaining to the level of support a school, and their third-party service providers, may provide to student-athletes as they engage in NIL opportunities. Although schools would still not be able to compensate student-athletes for the use of their NIL, the schools would be permitted to identify potential NIL opportunities. Additionally, an entity associated and/or aligned with a school would also be subject to the same rules regarding NIL, and thus would also be prohibited from directly compensating student-athletes for NIL opportunities.
  • A definition of “NIL entities”: As provided by the NCAA, the proposals would also define a “NIL entity” as “an individual, group of individuals, or any other entity (for example, a collective) organized to support the athletics interest of an NCAA school or group of schools by compensating student-athletes for NIL activities on behalf of itself or another third party.”
  • School support of “NIL entities”: The proposals would both eliminate and add certain regulations regarding NIL entities. For instance, regulations regarding communications between schools and NIL entities, as it pertains to enrolled student-athletes, would be eliminated. However, the proposal would continue to prohibit a school from providing any financial support to NIL entities.
  • Prohibitions regarding “prospects”: Under the proposal, an NIL entity would be prohibited from engaging in any form of communication with a prospect or potential transfer (or any individual associated with them) until they (i) sign a letter of intent, (ii) participate in summer activities or practice with the team, or (iii) enroll at the school and attend classes.

Both the proposed rules and the adopted rules represent an ongoing shift in the NCAA’s approach to NIL, with NCAA President Charlie Baker recently proposing rules that would permit Division I schools to pay student athletes. In light of these ongoing changes, Varnum’s NIL Team will continue to monitor these efforts.

Registration for H-1B Lottery Opens in March

The annual electronic registration process for H-1B cap-subject petitions will open for a two-week period in March 2024. U.S. Citizenship and Immigration Services (USCIS) will utilize a random lottery process to select 85,000 petitions for the H-1B cap (65,000 for the general category and 20,000 for the U.S. advanced degree category). Applicants selected in the random lottery will be notified by March 31 and will have until June 30 to submit the H-1B petition for the beneficiary named in the registration.

Varnum’s immigration attorneys have started to collect information to prepare for the March registration period. Employers with employees on F-1 Optional Practical Training (OPT) or candidates requiring cap-subject H-1Bs should contact us by mid-February for assistance with registration.

Independent Contractor or Employee? The Department of Labor Issues Highly Anticipated New Rule

Revised DOL Rules: Employee vs. Contractor Classification

On January 9, 2024, the U.S. Department of Labor (DOL) issued a final rule that redefines which workers should be classified as “employees,” and which workers qualify as “independent contractors” under the Fair Labor Standards Act (FLSA). The rule will be officially published on January 10, and will be effective on March 11, 2024. 

The FLSA requires that employees receive at least the minimum wage for all time worked and overtime pay for hours over 40 in a workweek unless they qualify as an exempt employee. Independent contractors, on the other hand, are not “employees” under the FLSA, and are thus not entitled to minimum wage or overtime under that statute. However, independent contractors typically enjoy more freedom than employees, including the opportunity to work for multiple companies at the same time, the ability to set and control their own work schedules, and the opportunity to negotiate their terms of service and pay. Whether a worker qualifies as an “independent contractor” or must be classified as an “employee” is a hotly debated area of the law, and the DOL’s definition has changed over time.

The final rule issued on January 9 rescinds the employer-friendly guidance that had been in effect since January 2021. That January 2021 guidance made it easier to define a worker as an independent contractor than prior approaches.

The DOL has now pivoted and returned to previous guidance that made it more difficult for a worker to qualify as an independent contractor. Under the new rule that takes effect on March 11, the emphasis is on whether the worker is “economically dependent on the potential employer for work” or “in business for themself.” Under this new test, six factors are considered, each of which is given full consideration. Those six key factors are as follows:

  1. The Opportunity for Profit or Loss Depending on Managerial Skill. Is the worker able to meaningfully negotiate the pay for the work provided, accept or decline jobs or choose the order of performance, engage in marketing and efforts to expand their business or obtain work, and make decisions regarding hiring, purchasing, or renting of space? If so, then this factor weighs in favor of independent contractor status.
  1. Investments by the Worker and the Employer. If the worker makes “capital or entrepreneurial” investments, they may be considered an independent contractor. Examples of capital or entrepreneurial investments include investment in expensive equipment, software, and facilities, retention of marketing services, or other investments that tend to help the worker work for multiple companies. These investments should be considered on a relative basis with the potential employer’s investments in overall business, to determine if the worker is making similar types of investments, even if on a smaller scale. The worker’s investments that are based on regular performance of a job, such as tools and basic equipment, do not apply.
  1. Degree of Permanence of the Work Relationship. The worker may be an independent contractor if they are not hired indefinitely but are hired for a fixed period of time, non-exclusive, project-based, or sporadically based on the worker being in business for themselves and marketing their services to multiple entities.
  1. Nature and Degree of Control. The worker may be an independent contractor if the worker controls their own schedule, is not supervised in the performance of the work, and is not explicitly restricted from working for others. Consider whether the worker or the company retaining the worker’s services controls the economic aspects of the working relationship, such as setting prices or rates for services and marketing of services or products provided.
  1. Extent to Which the Work Performed is an Integral Part of the Employer’s Business. The worker may not be an independent contractor if the contracted work is an integral part of the business. Work that is not critical, necessary, or central to the principal business supports a finding of independent contractor status.
  1. Skill and Initiative. A worker may be an independent contractor if the work requires specialized skills that the worker brings to the relationship, and “those skills contribute to business-like initiative.” This would exist where the worker uses those skills for marketing purposes, to generate new business, and to obtain work from multiple companies.

Additional factors may also be considered, if they indicate in some way that the worker is in business for themself, as opposed to being economically dependent on the employer for work.

Once this new rule takes effect on March 11, it is expected that fewer workers will qualify as independent contractors than under the prior rule. And the consequences of misclassification can be severe — employers who misclassify such workers can be liable for unpaid overtime going back up to three years, double damages, and attorneys’ fees and costs. Employers who use independent contractors should review their classifications prior to March to ensure such workers are properly classified under the DOL’s new rule. 

Please also note that the IRS has its own rule on which workers qualify as independent contractors, which is similar, but not identical, to the DOL’s new rule. The IRS rule determines whether a worker is an independent contractor who is not subject to withholding and thus can be issued a 1099, or whether the worker must be treated as an employee subject to withholding and issued a W-2.

Please contact your Varnum attorney, or any member of the firm’s Labor and Employment Practice Team, with questions about how this new DOL rule — or the existing IRS rule — may affect your workforce.

Corporate Transparency Act: Beneficial Ownership Challenges for Business Startups

Corporate Transparency Act: Disclosure and Reporting Requirements for Startups
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For newly formed businesses (startups), the first few years of operations are integral to the company’s success. Founders are concerned with hiring the right employees, developing intellectual property and products or service offerings, fundraising, investor relations, and now, they will also need to be concerned with the compliance requirements of the Corporate Transparency Act (CTA).

Congress passed the CTA in January 2021 to provide law enforcement agencies with further tools to combat financial crime and fraud. The CTA requires certain legal entities (each, a reporting company) to report, if no exemption is available, specific information about themselves, certain of their individual owners and managers (beneficial owners), and certain individuals involved in their formation to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury. The beneficial ownership information (BOI) reporting requirements of the CTA took effect on January 1, 2024. Those who disregard the CTA may be subject to civil and criminal penalties.

As explained in a prior advisory, a startup formed on or after January 1, 2024 is unlikely to fall into one of the CTA’s twenty-three (23) exemptions from the reporting requirements, so such startups will need to file a BOI report with FinCEN within ninety (90) days of its formation (or, if formed on or after January 1, 2025, within thirty (30) days of its formation), with updated BOI reports due within thirty (30) days of any change in the startup’s BOI as reported to FinCEN.

With complex capitalization tables, demanding investors and bespoke management structures, CTA compliance will present some unique challenges to startups, founders and officers.

Challenges in Disclosure

  1. 25% Owners: Nonexempt startups must disclose information about each individual that (directly or indirectly) holds 25% or more of the fully diluted equity of the startup. In order to calculate the fully diluted equity of the startup, a reporting company must consider the total number of shares that would be outstanding if all derivative instruments were exercised. This would include instruments such as stock options, simple agreements for future equity (SAFEs), convertible debt, and warrants. But the initial BOI report is just the beginning, as the set of persons whose details must be disclosed may change each time a derivative security expires, equity interests are sold, additional funds are raised, or the ownership structure of a corporate investor changes. Any such change may trigger an obligation to file an updated BOI report within thirty (30) days.
  2. Substantial Control: Nonexempt startups must also disclose information about any individual that (directly or indirectly) exercises substantial control over the startup. This includes:

    1. Senior officers of the reporting company;
    2. Persons who have the authority to appoint or remove certain officers or a majority of the board of directors of the reporting company;
    3. Persons who direct, determine or have “substantial influence” over important decisions of the reporting company, including decisions about its business, finances or structure; and
    4. Persons who otherwise exercise substantial control over the reporting company.

In the case of startups, this may require the disclosure of information about all members of the board of directors, as the relatively small size of most startup boards and the broad authority held by their members could bring those individuals within the definition above.

In addition, certain investors (including investors owning less than 25%) may get captured by the “substantial control” definition based upon their voting rights as owners of preferred stock, their negotiated veto rights over important decisions or actions, or other forms of influence over key appointments and decisions of the startup. The list of individuals who need to be included in the report will vary based upon the governance structure designed and negotiated by investors in the process of formation and fundraising, and each further round of investment or change in management will need to be scrutinized as a potential trigger for an updated report.

Challenges in Reporting

Each beneficial owner (including those who exercise “substantial control”) will need to provide his or her name, date of birth, current address, and photocopy of an acceptable identification document.  While this seems like information that would be easy to obtain, startups will face challenges.

    1. Structural Challenges: If the direct “beneficial owner” is an entity instead of an individual, the startup will need to conduct multiple levels of due diligence to determine the ownership structure and exercise of control at the level of that entity-owner. This may involve collecting detailed information about the ownership and management of complex investment funds and ownership vehicles, many of whom may be reluctant to provide details to founders.
    2. Reluctant Investors: Some investors may be hesitant or refuse to provide their details for personal or data privacy reasons. Others may take the position that the startup’s legal analysis that they qualify as beneficial owners is unsound. There is no good faith exemption for attempting to comply with the BOI reporting requirements. If the startup fails to comply with the CTA for any reason (including the acts or omissions of an uncooperative investor, director or officer), the startup will be out of compliance. Those that willfully fail to comply may face civil and criminal penalties.

Tools for Compliance

    1. Monitoring Triggers for Updates: As startups continuously raise funds, the ownership structure of the startup is constantly subject to change, and the resulting update requirements under the CTA are likely to be time-consuming and tedious for founders and investors. To meet this challenge, the startup will need to have protocols in place to monitor events likely to trigger an update requirement.
    2. Data Protection and Confidentiality: startups should consider how they will comply with data protection obligations and confidentiality requirements associated with the collection of personally identifiable information gathered pursuant to the CTA. It may be beneficial to designate a third-party provider to collect and store this information or direct persons to obtain a FinCEN identifier to mitigate risks associated with data protection, which can be costly.
    3. Ability to Gather Information for Disclosure: startups should include language in their formation and governance documents that requires investors, directors and officers to provide information necessary to facilitate CTA compliance as a condition to investing in or serving the startup. startups should also disclose the repercussions for investors and senior officers if an investor, director or officer fails to provide required BOI. Existing and potential investors, directors and officers may resist disclosing the necessary information, and the startup should be prepared to take action to compel such disclosure, where possible, to avoid liability to the company and personal liability to senior officers.

Varnum’s Corporate Transparency Act Taskforce of attorneys and other professionals can assist you. Contact Mallory Field of our Venture Capital and Emerging Companies team, any member of Varnum’s CTA Taskforce, or your Varnum attorney to learn more.

What Are Your Rights if EGLE or EPA Suspects Contamination at Your Property?

Understanding your rights if EGLE or EPA Suspects Contamination

We see it a lot: a client buys a piece of property and completes the necessary documents (i.e., a baseline environmental assessment) to ensure they are not liable under Michigan law for preexisting contamination. But then they are contacted by government regulators, looking for contamination and environmental risks and raising a multitude of questions: Do you have to respond? What is EGLE (Michigan’s Department of Environment, Great Lakes, and Energy) or EPA looking for? Are you going to have to pay a bunch of money to clean up the property? Do you have to do the testing that is being requested?

Michigan’s clean-up laws are largely government-regulated by Part 201, Environmental Remediation, of Michigan Natural Resources and Environmental Protection Act. Under Part 201, property owners and operators have various obligations, even if they completed a baseline environmental assessment (BEA) when the property was purchased. For example, a property owner or operator has certain “due care” obligations with respect to the property, such as not exacerbating environmental conditions. The property owner or operator must also ensure that the property is protective of the health and safety of persons using the property.

Similarly, the federal EPA has broad authority as well. Usually, the EPA does not get involved when EGLE does because a memorandum of understanding exists between the EPA and EGLE, which essentially says that EGLE will regulate properties that are suspected of containing hazardous substances. However, exceptions exist, such as Superfund sites. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the EPA has broad information gathering authority. Thus, as one client recently experienced, do not be surprised if EPA sends you a 104(e) request for information if you own or operate a Superfund site, even if it is a site in which EGLE is actively involved.

Michigan and federal environmental clean-up laws are complex. Thus, to no surprise, when clients get a notice of violation or compliance communication from government regulators, we often get a call. We can navigate you through the many complicated legal issues and we often involve environmental consultants as well.

Varnum’s environmental team is well versed in helping property owners and operators navigate the many issues that need to be addressed when government regulators start requesting information from you. If you have questions about environmental regulatory issues, contact a member of Varnum’s Environmental Team.