Beneficial Ownership Information Registration and Ownership Disputes

Last year, Congress passed the Corporate Transparency Act (CTA), which requires that companies across the country file Beneficial Ownership Information Registrations (BOIRs). These registrations, which will also have to be updated to reflect changes in ownership, are intended to crack down on money laundering crimes and to allow the federal government to find the ultimate owners of various companies.

How will these registrations, if filed, affect ownership disputes? From time to time, owners of companies find themselves broken out of their companies by other co-owners. This can be especially common in family businesses where documentation of ownership was never formally finalized and where various unspoken understandings carried on for years, resulting in conflict.

In this article, we’ll discuss the ways that BOIRs may change this area of litigation.

What is Beneficial Ownership Information Registration?

The BOIR is now required of companies that gross less than $5 million a year, whether registered as LLCs, Businesses Trusts, Corporations, Partnerships or in any other form. The Corporate Transparency Act provides various penalties to those who do not register, including criminal penalties and fines. The Trump administration recently announced that it will not enforce this part of the statute, but it remains the law that a future administration may enforce.

Proving ownership is the hard part.

In corporate fights, proving the actual ownership of the corporation can be a difficult part of the case. The disputes often come because someone has either doctored documents, destroyed documents, or because for years, no one put anything in writing. Accordingly, a BOIR filing—if it exists—is a crucial way to show who the owners are.

What if the BOIR is wrong?

While the CTA requires that BOIR filings be updated within 30 days of ownership changes, one problem that we suspect will be an increasing difficulty is that ownership changes won’t be reflected with these filings. A new owner will be brought in, will buy in, or will earn their way in with sweat equity and will find that the BOIR was never updated, whether through malice or pure neglect. In some ways, BOIR filings may create new problems because subsequent owners may find it hard to prove why they didn’t force the issue of filing the updated registration. This is especially true with whip-sawing guidance from the Federal Government on whether such filings are required or not.

What should I do if I’m a new owner?

If you’re a new owner in a company, you should require the company to make the filing within 30 days. This is true even if they point out guidance saying BOIRs are no longer “required.” In fact, as an owner, you’re entitled to do the filing even if nobody else in the company moves to do so. Don’t hesitate; file your BOIR for the company immediately.

Do the BOIR filings have any binding effect on state or federal courts?

An open question of law is whether these filings will have any sort of weight in court beyond mere evidence of ownership. The existence of this system does mean that failure to file could have fairly devastating effects down the road. Accordingly, what the evidentiary weight of these filings will be when produced in court in the future is still unknown.

Conclusion

Do you need help filing your BOIR? Call Cornerstone Law Firm today. The attorneys at Cornerstone Law Firm are experienced in business matters, and we’d be happy to help file your BOIR. As a beneficial owner, you have standing and can be penalized for not doing so. This may be an additional argument that will be raised against you in the future, which can be avoided with this filing.