NJ: 973.376.0909 |


The Corporate Transparency Act and New Disclosure Requirements


By The Corporate Group at Brown Moskowitz & Kallen, P.C.

The Corporate Transparency Act and New Disclosure Requirements

A new federal law, taking effect January 1, 2024, imposes new disclosure requirements on privately held companies. The Corporate Transparency Act (the “Act”) takes aim primarily at smaller companies in industries that are not highly regulated. The Act — part of the U.S. Anti-Money Laundering Act of 2020 — is intended to penetrate multiple layers of entities to identify, and thus deter, illegal activities, including terrorist financing, money laundering, and tax fraud.

Who Reports

Businesses that meet the definition of a “reporting company” are required to report certain information about the entity and its beneficial owners via the U.S Treasury Department’s Financial Crimes Enforcement Network (FinCen) secure website. The data will be available to U.S. law enforcement and other government agencies, including the IRS, and select financial services companies, but not the public.

Definition of “Reporting Company”

There are two types of reporting companies under the Act: A domestic entity formed or registered by filing a document with the office of the secretary of state, or any applicable office, under the law of a state or Indian tribe and a foreign entity formed under the law of a foreign country and registered to do business in any U.S. state or U.S. tribal jurisdiction. Unless an exemption applies, discussed below, EVERY business formed in the U.S. or doing business in the U.S. is subject to reporting under the Act – including corporations, limited liability companies, and most limited partnerships. Most trusts are likely excluded since they are not created by filing with a state authority.

Exemptions from Reporting

There are 23 exempt categories of business entities. A full list can be found in the reference guide posted by FinCEN on its website: Beneficial Ownership Information Reporting | FinCEN.gov. The more common exemptions cover public companies, “large operating companies,” public accounting firms, regulated insurance companies, registered investment companies and advisers, registered venture capital fund advisers, banks, securities brokers and dealers, exchanges, regulated public utilities, tax-exempt non-profits and trusts, subsidiaries of exempt entities, and “inactive entities.” The exemption for “large operating companies” requires constant monitoring of employee levels and revenues. The law defines this entity as one that (i) employs more than 20 employees full-time in the U.S. (no aggregation), (ii) has filed U.S. income tax returns for the prior year reflecting more than $5 million in aggregate gross receipts or sales from U.S. sources, and (iii) operates a physical office in the U.S.

Data to Report

Reporting companies must report data about the entity, beneficial owner information (“BOI”), and, for entities formed on or after January 1, 2024, company applicant information. Information to be reported about a reporting company includes the entity’s legal name, trade names, DBAs, address, federal Tax ID number and the jurisdiction of formation or registration. The law describes a “beneficial owner” as an individual who, directly or indirectly, exercises substantial control over a reporting company or owns (directly or indirectly) or controls at least 25% of the ownership interest therein. The information to be reported includes legal name, birthdate, residential street address, and the identifying number from and a copy of ID such as a non-expired driver’s license or passport. A “company applicant” is the person who “directly files” the document that creates the reporting company (e.g., the certificate of formation) or who is primarily responsible for directing such filing. The same personal information that is reported for beneficial owners is to be reported for up to two company applicants. Reporting companies must collect, store, and report personally identifiable information (“PII”) securely or risk penalties under the Act.

Filing Deadlines

The Chart below lists the filing deadline for initial reporting by reporting companies. Reporting companies must report any changes in BOI to FinCEN within 30 days after a change occurs.

Date Formed or Registered in U.S.

  • Formed or registered before January 1, 2024
  • Formed or registered on or after January 1, 2024, but prior to January 1, 2025
  • Formed or registered on or after January 1, 2025

Filing Deadline

  • January 1, 2025
  • Within 90 calendar days of receiving actual or public notice of the effective date of creation or registration
  • Within 30 calendar days of receiving actual or public notice of the effective date of creation or registration

Civil and Criminal Penalties for Noncompliance

The penalties for providing false or fraudulent information or failing to submit a complete initial or updated report are fines of $500 per day up to a maximum of $10,000, imprisonment for up to two years, or both. Penalties for the unauthorized disclosure or use of BOI are fines of $500 per day up to a maximum of $250,000 and imprisonment for up to five years for the knowing unauthorized disclosure or use of BOI. The prompt correction of inaccurate information (within 90 days of becoming aware) may avoid penalties.

BMK is Ready to Help Your Business Navigate the CTA

Contact us today at (973) 376-0909 if you would like help analyzing whether your business is a reporting company under the CTA. We can answer your questions about the CTA and advise the next steps your business should take regarding (i) updating of contracts, company documents and deal agreements, (ii) creating or updating company internal policies/procedures, and (iii) implementing internal systems for collecting and reporting data securely. Accurate data collection and reporting with a process for ensuring the security of PII are key to staying compliant with the Act.

Disclaimer: Any legal advice regarding the application of the Act and reporting obligations requires a new Firm engagement. BMK’s existing client engagements do not contemplate legal advice or analysis regarding compliance with or reporting obligations under the Act. 

©Copyright 2023, Brown Moskowitz & Kallen, P.C. All rights reserved. This article is for informational purposes only and is not intended to constitute, and does not constitute, legal advice.

Dec 11, 2023

Sole Business Owners and Catastrophic Illness: What Happens if I Become Disabled and Cannot Run My Business?

by Norman D. Kallen, Partner, Brown Moskowitz & Kallen, P.C.

The COVID-19 pandemic brought to light a critical issue for which all small business owners should always have contingency plans: what should a sole business owner do to maintain business continuity in the event the owner becomes ill or otherwise disabled?

Sole proprietors, sole members of LLCs, sole shareholders of a corporation, self-employed individuals and independent contractors often are the only persons in their businesses authorized to conduct certain aspects of business activities on behalf of their entity or themselves. For example, these individuals may have sole authority to handle banking activities (sign checks, etc.), review and approve payment of payroll and accounts payable, review and approve invoices, and oversee policy related to accounts receivable. What if a sole member of an LLC is also the only officer of the company? Who steps into his or her shoes in the event of illness or other disability? Is there a mechanism for temporarily authorizing a trusted advisor, friend or family member to act on the owner’s behalf to handle any or all of the above-described activities?

The best way to provide for these types of circumstances is to plan in advance and prepare an agreement appointing a designated individual to undertake “running the business.” A power of attorney or a simple signatory authority document from a bank may be too broad or too narrow to meet the owner’s requirements. Moreover, if the business is operated in the form of an LLC or corporation, the only documentation that your bank may have for you to enter into is the authorization of an additional signatory on checks and loan matters. To that end, you may not wish to grant an employee, trusted advisor, friend or family member that authority immediately. Without some sort of agreement in place with either an employee, trusted advisor, friend or family member, you are placed at a disadvantage from a management perspective.

An owner should make a list of tasks that are essential to preserving the business in his or her absence. Next, the owner should very closely consider who he or she trusts to operate the financial aspects of the business. After these issues are clarified, the owner and the “stand-in” need to come to an agreement in writing regarding the duties, rights, liabilities, indemnification and the commencement or effective date for these duties and a date of termination of the agreement.

The agreement should explicitly set forth:

  • The current duties of the business owner that would need to be continued in the event that the owner is unable to carry out those obligations;
  • The full and proper legal name of the “stand-in”;
  • The “trigger” circumstances under which the agreement will take effect;
  • The exact list of undertakings of the “stand-in” which to a large extent would mirror 1. above;
  • The grant of authority to the “stand-in” to execute the tasks set forth in the agreement such that a third party, including a bank, would be able to rely on the document as proper authorization for the “stand-in” to act;
  • Allocation of risks – liabilities and indemnification; and
  • Circumstances under which the business owner terminates the authority of the “stand-in”

Standard terms and conditions would also be included. It is important to have the document notarized, because it will, no doubt, be presented to banks or other institutions that require this formality.

The COVID-19 public health crisis was a wake-up call for all sole business owners and individual business entrepreneurs. The critical point is to consider and plan for illness and disability in any circumstance to ensure the continuity of your business in your absence.

If you would like more guidance, please contact Norman D. Kallen at Brown Moskowitz & Kallen, P.C. at (973) 376-0909, ext. 1114 or via email, nkallen@bmk-law.com

Oct 03, 2023

BMK Prepares Succession Plan for Industry-Leading Landscape and Hardscape Contractor

Succession planning is about actively listening to the needs and wants of business owners, discussing realistic goals based on experience and crafting a practical and achievable plan. Brown Moskowitz & Kallen recently advised River Edge, New Jersey-based leading landscape and hardscape company, Let It Grow, Inc. in the development of a succession plan that would sustain the legacy of its founder Paul T. Imbarrato.

Established in 1986, the Company is renowned for its expertise in the planning, execution and delivery of world-class design/build and landscape projects throughout the Northeast. With Mr. Imbarrato at the helm, Let It Grow has evolved into a leading regional firm serving prominent organizations such as Prudential, Unilever, Rutgers University, NJIT, and Westfield Garden State Plaza, among many others.

The succession plan was a collaborative effort developed over the course of several conversations involving Mr. Imbarrato, the Company’s incumbent accountant, an investment banker, a family office consultant, a benefits and insurance consultant and BMK. Ultimately, Mr. Imbarrato shared equity in Let It Grow with certain team members pursuant to a vesting schedule designed to motivate the recipients and ensure continuity of management. The succession plan also enables Let It Grow to remain independent while creating an incentive for the continuing recruitment of key industry talent. While Mr. Imbarrato is not ready to retire, his objective, in part, was to create a pathway for eventual retirement that does not require acquisition by private equity. Rather, Mr. Imbarrato wanted to ensure the Company’s sustainability for many years ahead.

“I was seeking a way to continue my firm’s legacy while enrolling my existing highly valued team in ownership of the Company,” said Mr. Imbarrato. “I take great pride in having built Let It Grow to the success it is today. I am now confident that success will continue in the hands of my employee owners even after I am no longer engaged in the day-to-day activities of the Company. BMK was instrumental in helping me transform my vision into a comprehensive and practical plan. ”

“The Let It Grow succession plan is a key example of how BMK listens to client needs and devises innovative solutions that align with their professional and personal desires,” said Stuart M. Brown, Partner and Co-Chair of the Commercial Transactions practice at BMK. “We knew Paul Imbarrato did not wish to sell his Company as his means of exiting the business he painstakingly created over several decades. He has great faith in his dedicated and talented employees. While no one can predict the future, Paul takes comfort knowing that he implemented a succession plan providing for continuity of management upon his retirement and establishing a means for the Company to continue to grow and thrive..”


Sep 19, 2023

Reminder To Contracting Parties: An Ounce Of Prevention Is Worth A Pound Of Cure

By Kenneth L. Moskowitz, Esq.

While the pressure to make deals or “book” work is certainly understandable, especially in the wake of the Covid-19 crisis and the on-going recovery, business owners and senior managers would be wise to resist the temptation to complete potentially problematic deals and, instead, should remain faithful to fundamental contracting principles.

As a threshold matter, contracting parties must be careful to complete all of the diligence necessary to ensure that the proposed “business deal” makes economic sense. As every business owner well knows, there simply is no substitute for such investigations, and shortcuts often lead to poor and regrettable deals or contracts.

Once being satisfied that a deal makes economic sense, contracting parties should take the time and maintain the discipline necessary to ensure that the deal made in principle is documented accurately, and that all of the material terms and conditions are clearly stated in the contract. Among other things, the contract must include a precise description of the subject goods, services and/or deliverables, as well as the schedule for such performance and for receipt of the required payments. Depending on the circumstances, the inclusion of an attorneys’ fee/cost of collection term, arbitration and/or choice of forum provisions may be prudent, if not necessary. Again, as business owners and their contract agents know, even what may appear to be a “good deal,” if not properly documented, can lead to a disastrous result.

Further, contracting parties should not be satisfied that the written agreement “more or less” memorializes the parties’ agreement, or take for granted that the other party to the contract has the same understanding and/or will faithfully discharge its contract responsibilities unless those duties are clearly and plainly recited. The hope or notion that once an ambiguous contract is signed the other party will perform as you expect, and/or that the other party can be counted on later to resolve contract ambiguities in good faith and on a fair and equitable terms consistent with your intent at the time of contracting, may not be realistic. The assumption of such risk — risk that may have been avoidable — would be regrettable and certainly could be costly.

Finally, while each potential contract negotiation has its own dynamics, fair and equitable contract terms should be negotiated, not dictated by one party. Even where one party to the contract is recognized to enjoy a superior bargaining position, the other party should resist a “take it or leave it” ultimatum that may leave it exposed. In that circumstance, the party in the inferior bargaining position should carefully consider pressing for the negotiation of those essential terms that are necessary to make the deal fair to both parties or, at the very least, “chipping away” to make the agreement more palatable.

Contract litigation is often the result of some failure in the negotiation and/or documentation of a business deal. Business litigation is time consuming, expensive and can have the detrimental effect of diverting the parties’ attention from the management and operation of their businesses. While the potential for litigation cannot be eliminated, completing the requisite diligence and exercising the needed discipline in the negotiation and documentation of the business deal or contract should reduce that risk.

©Copyright 2023, Brown Moskowitz & Kallen, P.C. All rights reserved. This article is for informational purposes only and is not intended to constitute, and does not constitute, legal advice.

Mr. Moskowitz is a former prosecutor and is a founding partner of Brown Moskowitz & Kallen, P.C., in Chatham New Jersey. He represents clients in diverse business disputes, commercial litigation, internal investigations, “corporate divorce” matters, insurance coverage litigation and other business-related disputes.

For further information, please feel free to contact Mr. Moskowitz by email at klm@bmk-law.com, or call him at 973-376-0909.

Sep 06, 2023

Understanding Force Majeure Clauses in Business Contracts

By Stuart M. Brown, Partner and  Norman D. Kallen, Partner

Brown Moskowitz & Kallen, P.C.

How should a business respond when it or its counterparty cannot fulfill obligations under an existing agreement or when entering into a new business relationship? There are myriad practical and legal answers to the question. Here, the focus is the application of the concept of force majeure in the context of contractual business relationships.Read More

Aug 08, 2023

Selling Your Business? How to Uncover the Value of Your Business and Your Actual Net Worth Post Sale

By Stuart M. Brown, Partner and Co-Chair, Commercial Transactions, Brown Moskowitz & Kallen, P.C.
Richard A. Fortune, LUTCF, Financial Services Executive and Financial Advisor, The Fortune Group, Barnum Financial Group

You’ve dedicated your career and your life, and often the lives of your family members, to building and maintaining a successful business. Now, you’ve reached a point where you would like to sell the business, relax and reap the rewards of your years of hard work, or perhaps, dive into a new entrepreneurial venture. In either case, two things are true: it is vital for you to determine the accurate value of the business and to understand what your actual income and net worth will be upon the sale of the business so you can maintain the lifestyle you aspire to live in your next chapter.Read More

Aug 10, 2023

The Importance of Due Diligence in Large and Small Merger and Acquisition Transactions

By Justin Escher Alpert

Due diligence is an art. It is a coordinated dance between skilled practitioners in creatively bringing Mergers and Acquisitions transactions together.

In a large public transaction, bankers and lawyers on each side will throw dozens of young associates on a project to develop disclosure schedules that are cross-checked over-and-over again. Money is no object in a $50 billion dollar transaction, but peel it back by several orders of magnitude, and whether your transaction is worth $500,000, $5 million, or $50 million, the due diligence process is still vitally important.

The buyer will obviously want an idea of what exactly it is buying, whether it be assets or securities. For the seller, the due diligence process is important to develop the disclosure schedules that will keep the seller’s representations and warranties in the purchase agreement accurate. In a good and complete due diligence process, it shouldn’t surprise the seller to discover things that it did not know about itself.

Due diligence is never perfect and you don’t know in advance what you will find. In a recent strategic acquisition, a large family business purchased a simple cash-flow generating company which the sole proprietor basically ran out of his head for thirty years. Contracts were mostly oral in an industry based on old school ties and firm handshakes. The due diligence process had to make the buyer comfortable with what it was getting, with representations and warranties that would match its understanding.

In another strategic acquisition, the buyer definitively told his attorneys to just paper the contracts because he knew that the seller had run a good business for years. Of course, the due diligence process would continually turn up issues which would then need to be resolved by the parties and their professional advisors. Your professional advisors are there to ask good questions, spot issues, and protect your interests as you make informed decisions.

It is not always just the seller who is forced through the due diligence introspection. If the seller is taking an earn-out over time or rolling-over part of the purchase price into buyer equity, it is important to know that the buyer will be able to continue operating as a going concern. A proper due diligence of the buyer becomes important. If the buyer is just a shell company, guaranties may be needed from a parent entity.

In all of these scenarios, getting beyond the terms of a letter of intent and into the details is vitally-important. In the corporate mating ritual, issues arise and the professional intermediaries are in a position to sort them out in a manner that crafts a common sense understanding, guiding a transaction towards closing. On larger transactions, it is not uncommon to hear from sellers that the due diligence process is “like drinking from a firehose.” There can be a tremendous amount of work that needs to be done (and that’s in addition to running the company). A smaller transaction does not necessarily scale down and may require much of the same efforts. For a buyer in a large institutional transaction, due diligence is just a cost of doing business. However, in a smaller acquisition, a life’s savings may be at stake. In either case, good adversarial process is the best way to check issues and resolve potential conflicts.

* * * * *

Mar 30, 2023

Pulling Back the Legal Curtain

(published on LinkedIn July 16, 2019)

Fact, you have a great group of advisors who are there for you. One morning, you are pleasantly surprised when you are contacted by a credible third party who is interested in buying your company for a substantial sum and she presents you with a letter of intent (LOI). You read it through carefully and you contact the buyer to let her know that you are all set to go, but you just want to run it by your lawyer first. You tell her, “No big deal, I just want his quick review… I’ll have it to you by noon.” You email this message to her at 6:45 p.m., just before you leave for the night. The last thing you do before leaving your office is send the LOI to your attorney, asking him to review it so that you can sign it and send it to the buyer by noon on Tuesday (of course, it is now 7:00 p.m. on Monday night).

Your lawyer wants to please you, trust me, he does. Clearly, he has been waiting all day for your email. In fact, when he woke up on Monday morning, he had a feeling that you would get an unsolicited offer to sell your business and that he would have to review the LOI quickly. If it is not obvious, the last two sentences were written sarcastically.

Successful transactions require all parties to set reasonable expectations. If your attorney had nothing to do and was just waiting around for your email, you probably should switch attorneys. Most of us are busy — very busy — and that’s the way you want it: this means that we are in demand, working with clients on matters similar to yours. What we learn on a daily basis can then be applied to your matters for your benefit.

The lesson here — be realistic. You cannot reasonably anticipate that your attorney will be able to drop everything for you, review, analyze and potentially revise a significant document like an LOI “overnight.” If unreasonable expectations are set, everyone will be subject to unnecessary stress, impeding the ability to focus. In fact, the process will take longer under those circumstances.

Speak with your attorney, explain your needs and your wants (two different things) and discuss when you can reasonably expect the work product. It will result in a less stressful process, a better work product and get you to the finish line more quickly.

Jul 16, 2019

Selling Your Business: Carrying Paper

(published on LinkedIn July 2, 2019)

If you are working toward selling your business and you receive a proposal to sell the stock in your business, rather than the assets, I suppose you would be happy. Chances are you will be taxed at capital gains rates rather than ordinary income tax rates… all is well.

Assume, for this post, that the buyer is willing to pay your asking price. However, she wants to pay it over a long period of time and you are asked to “carry the paper” (the buyer will provide you with a promissory note to memorialize the debt).

Couple of thoughts:

  • Be cautious. If you get a pledge of your stock as security, you may think that is sufficient. Think again. If the buyer drives the business into the ground and stops paying you under the promissory note, what good is the stock?
  • Be creative. Oftentimes, there are alternatives… a lien on the underlying assets, personal guarantees, letters of credit, etc. Also, consider accepting a lower purchase price in order to accelerate the payments over a shorter period.

Bottom line, you are not wed to any deal structure. Consider several alternatives and analyze the consequences with your attorney. Remember, there is no correct answer; however, there are bad results.

Jul 02, 2019

How to Best Work on a Corporate Transaction with Your Attorney

(published on LinkedIn June 18, 2019)

Successful transactions are consummated every day, some due to the skills and experience of the deal team and others purely by luck. Assuming you prefer the former, I suggest you consider the following when working with your attorney toward a successful outcome on a transaction:

  1. Engage your attorney early on in the process. Speak with your attorney before you enter into a preliminary agreement such as a letter of intent (in connection with a purchase or sale) or a commitment letter (in connection with a financing). An experienced business attorney should be able to help you frame the structure of the transaction.
  2. Allow your attorney to review the preliminary documents and provide you with feedback before you commit to the preliminary terms. The tone of the negotiations is set at this early stage. Knowledge is power and you want to maintain a position of strength throughout the negotiation.
  3. Use your attorney as your proxy. Attorneys should be the “bad” or “tough” guy or gal during the negotiation. Chances are, you will have to maintain a good working relationship with the counterparty on a post-closing basis.
  4. Communicate with your attorney and be honest. Ask questions frequently and satisfy yourself that you understand the answers.
  5. Set realistic deadlines. Setting unreasonable deadlines will only create additional stress on all parties which leads to sub-par work product. When mapping out the timing of transaction process, ask yourself where you have leeway.
  6. Do not lawyer for your lawyer. You engaged your attorney to represent your interests. While tempting, resist self-help methods to save a few dollars. Allow your professionals to do their job.
  7. Discuss fees and bills on a timely basis. If you have questions regarding current invoices, bring those concerns up to your attorney as soon as possible. This should ensure that the time entries in question remain fresh in people’s minds.
  8. Last, bear in mind that your attorney is on your side. If you believe that your attorney is taking the wrong approach do not circumvent him or her by going directly to the counterparty. Rather, discuss your concerns with your attorney frankly and promptly.

Communication is critical when working with your attorney. Speaking often and directly should save you time and money and make for a much less stressful transaction.

Jun 18, 2019
Page 1 of 212