On December 3, 2024, the United States District Court for the Eastern District of Texas issued a Memorandum Opinion and Order granting Plaintiffs’ motion for a preliminary injunction, on a nationwide basis, of the Federal Corporate Transparency Act (“CTA”) and enforcement of the CTA by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) (Texas Top Cop Shop, Inc. et al. v. Merrick Garland, Attorney General of the United States, et al. (4:24-cv-478)). Although the Court concluded that “[t]he CTA is likely unconstitutional as outside of Congress’s power,” the current decision only enjoins the CTA pending further decision from the Court. As a result, the CTA reporting requirements and deadlines are stayed unless and until further decision from the Court.

While the CTA is currently enjoined on a nationwide basis, the District Court’s decision does not affect any similar state corporate transparency laws. New York’s LLC Transparency Act (the “NY Act”) requires the disclosure of beneficial ownership information to the New York Department of State by limited liability companies formed under the laws of the state of New York and foreign limited liability companies authorized to do business in the state of New York. The NY Act is largely based on the CTA and currently is set to go into effect on January 1, 2026.

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For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner or Rose Egan. You can follow our blog for more information as it becomes available.

New York State recently adopted a new law known as the Freelance Isn’t Free Act (the “NYS Act”), as Article 44-A of the General Business Law. The NYS Act follows in the footsteps of a New York City law by the same name. Both laws address independent contractor arrangements and offer protections to certain independent contractors or freelance workers, as defined in the NYS Act and the New York City law. However, the two laws vary in some aspects. Below is a description of the NYS Act’s requirements and provisions.

Who is a freelance worker under the NYS Act?

A “freelance worker” is defined as “any natural person or organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for an amount equal to or greater than $800, either by itself or when aggregated with all contracts for services between the same hiring party and freelance worker during the immediately preceding 120 days.”

Who is not a freelance worker under the NYS Act?

The term “freelance worker” does not include:

(a)        sale representatives (defined in section 191-a of the NY Labor Law);

(b)        attorneys;

(c)        licensed medical professionals; or

(d)        any person who is a construction contractor that offers or undertakes a construction project, which the Act defines as “the providing of any labor or services, and the use of any materials or equipment in order to alter, build, excavate, add to, subtract from, improve, repair, maintain, renovate, move, wreck or demolish any bridge, building, highway, road, railroad, land, tunnel, sewer, drainage or other structure, project, development, or improvement, or the doing of any part thereof, including the erection of scaffolding or other structures or works in connection therewith.”

Who is a hiring party under the NYS Act?

A “hiring party” is any person who retains a freelance worker to provide any service.

Who is not a hiring party under the NYS Act?

The term “hiring party” does not include any federal, state, local or foreign government, or any of its offices, departments, agencies, or other bodies.

What does the NYS Act require?

The NYS Act requires several actions by the parties to a freelancing arrangement, as follows:

  • When a hiring party retains a freelance worker to provide services, the agreement between them must be put into writing.
  • The hiring party must provide a copy of the written agreement to the freelance worker and each party must retain a copy.
  • The hiring party is required to keep a copy of the contract for six years. If the hiring party cannot provide a copy of the contract, there will be a presumption that the terms the freelance worker presents are the agreed upon terms.

What must the written contract include?

Under the NYS Act, all freelance contracts must include:

  • the names and mailing addresses of the parties;
  • a detailed description of the services to be provided;
  • the payment terms for the services (payment date or how to determine, rate and method of compensation), and
  • the date by which the freelance worker must provide a list of services actually provided.

If the contract does not specify a due date for payment (or how to determine such date), then the contracted payment must be paid no later than 30 days after completion of services. Additionally, the hiring party cannot require the freelance worker to accept less than the contracted compensation as condition of timely payment, after the freelance worker has commenced the services under the contract. This does not prohibit the parties from agreeing in the written contract that hiring party can receive a discount for timely payment.

NYSDOL has prepared sample contracts for use by the public which are available at its website.

What are the penalties for not complying with the NYS Act?

Failure to comply with the NYS Act does not render any contract between a hiring party and a freelance worker void or voidable, does not otherwise impair any obligation, claim or right related to such contract, and does not constitute a defense to any action or proceeding to enforce, or for breach of, such contract. However, any waiver of the rights granted under the NYS Act in the contract is deemed void as against public policy.

The NYS Act grants freelance workers a private right of action to sue the hiring party for damages.

Additionally, the Attorney General may bring an action against a hiring party for violating the Act. Penalties include $1,000 for a first violation, $2,000 for a second, and $3,000 for any subsequent violations. If a hiring party is found to have a pattern of violating the NYS Act, then a fine of up to $25,000 may be imposed.

How does the NYS Act affect the New York City Freelance Isn’t Free law?

The NYS Act does not override the New York City Freelance Isn’t Free law (Chapter ten of Title 20 of the NYC Administrative Code), so both laws may apply to certain independent contractor arrangements in certain circumstances, which can lead to some confusion as to compliance with these laws.

If either party is located in New York City or the services are to be performed in the City limits, then the New York City Freelance Isn’t Free law applies, subject to its terms. Most importantly, unlike the NYS Act, the New York City law does not exclude construction contractors as covered freelance workers, so that a written contract is required if the New York City law applies (but is not required if it doesn’t).

On the other hand, the NYS Act has certain requirements that are not part of the New York City Freelance Isn’t Free law, such as requiring a date the freelance worker will provide a list of services actually performed). As a result, if either party is located or the services are to be provided in New York City but the matter does not involve construction, the hiring party must comply with the NYS Act (as doing so will also satisfy the New York City law). Alternatively, if either party is located or the services are to be provided in New York City and the matter does involve construction, the hiring party must comply with the New York City law (and may, if it so elects, comply with the NYS Act).

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For further information or guidance on how this law may affect your business, or for assistance in revising your policies and procedures in accordance with this law, please contact David Paseltiner or Rose Egan.

In our Transparency-is-in-Your-Future series, we have covered the timing and information required in beneficial owner information reports (“BOI reports”), what determines a beneficial owner of a reporting company, and the 23 exemptions to a reporting company under the Corporate Transparency Act (“CTA”). As a reminder, for those entities existing before January 1, 2024, initial BOI reports must be filed on or prior to January 1, 2025.

On September 23, 2024, FinCEN released the below bulletin announcing it is hosting a virtual information session on BOI reports on September 25, 2024 at 2pm ET:

September 25: FinCEN Virtual Info Session on Beneficial Ownership Reporting

The Corporate Transparency Act requires many companies doing business in the United States to report information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) about who ultimately owns or controls them. Join a FinCEN representative for a virtual information session on beneficial ownership information (BOI) reporting requirements and how to comply with the law.

WHAT: Info session on beneficial ownership reporting

WHEN: Wednesday, Sept. 25, 2024, at 2 p.m. ET

WHERE: www.youtube.com/@fincentreasury

Filing BOI is simple, secure, and free of charge. For more information on the reporting process, visit https://www.fincen.gov/boi .

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Additionally, FinCEN has prepared Frequently Asked Questions (FAQs available here) in response to inquiries received relating to the Beneficial Ownership Information Reporting Rule.

Each entity that is a reporting company should collect the necessary information for itself and its beneficial owners. To ensure compliance with these regulations, all entities should review their internal procedures and organizational documents. Ideally, an entity’s corporate governance documents (e.g. shareholders’ agreement, operating agreement, partnership agreement, etc.) will (1) require its owners to timely disclose the information required to be provided under the CTA (or other applicable federal or state laws, such as the newly enacted NY LLC Transparency Act), (2) provide for consequences for failing to do so, and (3) provide that the entity can disclose the information to FinCEN or as otherwise required by applicable law.

For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner or Rose Egan. You can follow our blog for more information as it becomes available.

For those of you following our Transparency-is-in-Your-Future series, you already know that the Corporate Transparency Act (“CTA”) went into effect on January 1, 2024 and now entities of all shapes and sizes are scrambling to figure out what information they need to report and when, or if they are perhaps exempt from the reporting requirements altogether.

As an update, the CTA (31 CFR 1010.380) was revised to provide a new reporting schedule for filing an initial report with U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). as outlined below:

Additionally, a reporting company must file a report within 30 calendar days after the date that (x) a change in beneficial ownership occurs or (y) the reporting company becomes aware or has reason to know of an inaccuracy in its report.

We now turn our focus to reporting companies and the 23 exemptions established in the CTA.

What is a reporting company under the CTA?

The term “reporting company” includes any entity created (or, for an entity formed under the laws of a foreign country, registered to do business in the US) by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe. Accordingly, if not otherwise exempt, reporting companies include corporations, limited liability companies, limited partnerships, limited liability partnerships and limited liability limited partnerships (where they exist), and potentially other professional service entities.

What entities are exempt from reporting under the CTA?

The term “reporting company” does not include (each of which is described in more detail below):

What is an “investment company or investment adviser” under the CTA?

Any entity that is: (a) an investment company as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3), or is an investment adviser as defined in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2); and (b) Registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq. ) or the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).

What is a “venture capital fund adviser” under the CTA?

Any investment adviser that: (a) is described in section 203(l) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(l)); and (b) has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the Securities and Exchange Commission.

What is an “accounting firm” under the CTA?

Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212).

What is a “pooled investment vehicle” under the CTA?

Any pooled investment vehicle that is operated or advised by a bank, credit union, broker or dealer in securities, investment company or adviser, or venture capital fund adviser, each as defined in the CTA.

What is a “tax exempt entity” under the CTA?

Any entity that is:

(a)          an organization that is described in section 501(c) of the Internal Revenue Code of 1986 (Code) (determined without regard to section 508(a) of the Code) and exempt from tax under section 501(a) of the Code, except that in the case of any such organization that ceases to be described in section 501(c) and exempt from tax under section 501(a), such organization shall be considered to continue to be exempt for the 180-day period beginning on the date of the loss of such tax-exempt status;

(b)          a political organization, as defined in section 527(e)(1) of the Code, that is exempt from tax under section 527(a) of the Code; or

(c)          a trust described in paragraph (1) or (2) of section 4947(a) of the Code.

What is an “entity assisting a tax exempt entity” under the CTA?

Any entity that:

(a)          operates exclusively to provide financial assistance to, or hold governance rights over, any entity described as a “tax exempt entity” under the CTA;

(b)          is a United States person;

(c)          is beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or lawfully admitted for permanent residence; and

(d)         derives at least a majority of its funding or revenue from one or more United States persons that are United States citizens or lawfully admitted for permanent residence.

What is a “large operating company” under the CTA?

Any entity that:

(a)          employs more than 20 full time employees in the United States, with “full time employee in the United States” having the meaning provided in 26 CFR 54.4980H-1(a) and 54.4980H-3, except that the term “United States” means “the States of the United States, the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the United States” (such as Puerto Rico, U.S. Virgin Islands, Guam, etc.);

(b)          has an operating presence at a physical office within the United States; and

(c)          filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as reported as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under Federal income tax principles.

                For an entity that is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504 that filed a consolidated return, the applicable amount shall be the amount reported on the consolidated return for such group. However, the large operating company exemption requires that the entity itself employ more than 20 full-time employees in the United States and does not permit consolidation of this employee count across multiple entities.

What is a “subsidiary of certain exempt entities” under the CTA?

Any entity whose ownership interests are controlled or wholly owned, directly or indirectly, by one or more entities described in the CTA, except for a money services business or a pooled investment vehicle, or an entity assisting a tax exempt entity as defined under the CTA.

What is an “inactive entity” under the CTA?

Any entity that:

(a)          was in existence on or before January 1, 2020;

(b)          is not engaged in active business;

(c)          is not owned by a foreign person, whether directly or indirectly, wholly or partially;

(d)         has not experienced any change in ownership in the preceding twelve month period;

(e)          has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve month period; and

(f)           does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

How does a company report to FinCEN that it is exempt?

A company does not need to report to FinCEN that it is exempt from the BOI reporting requirements if it has always been exempt.

If a company filed a BOI report and later qualifies for an exemption, that company should file an updated BOI report to indicate that it is newly exempt from the reporting requirements. Updated BOI reports are filed electronically though the secure filing system. An updated BOI report for a newly exempt entity will only require that the entity: (1) identify itself; and (2) check a box noting its newly exempt status.

Alternatively, if a company no longer qualifies for an exemption, it must file a BOI report within 30 calendar days after the date that it no longer meets the criteria for any exemption.

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Entities should review the CTA and FinCEN regulations to confirm whether they must file a BOI report or are eligible for an exemption. Each entity that is a reporting company should collect the necessary information for itself and its beneficial owners. To ensure compliance with these regulations, all entities should review their internal procedures and organizational documents. Ideally, an entity’s corporate governance documents (e.g. shareholders’ agreement, operating agreement, partnership agreement, etc.) will (1) require its owners to timely disclose the information required to be provided under the CTA (or other applicable federal or state laws, such as the newly enacted NY LLC Transparency Act), (2) provide for consequences for failing to do so, and (3) provide that the entity can disclose the information to FinCEN or as otherwise required by applicable law.

For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner or Rose Egan. You can follow our blog for more information as it becomes available.

In An RPAPL 881 Proceeding, Appellate Division Finds That A Licensor May Be Entitled To Recover Damages When Licensee Fails to Provide Proof of Sufficient Insurance[1] 

The adequacy of the insurance required to be provided by a property owner seeking to obtain a license to enter onto an adjacent property in order to perform construction work on his or her own property is one of the most important issues in negotiating a license.  The Appellate Division has now indicated that the failure to provide proof of sufficient insurance may allow the adjacent property owner to obtain money damages, including attorney’s fees in a proceeding commenced pursuant to RPAPL 881 to obtain a license to perform the construction work.  

In Matter of 269-273 14th St NY Corp. v. Stein[2], the Petitioner (“Licensee”) commenced a proceeding under RPAPL 881[3] to obtain a license to temporarily enter premises owned by the adjacent neighbor (“Licensor”) “for the purpose of demolishing existing buildings and constructing a new building on the adjacent property.”[4]  In March 2018, the license was granted upon the condition, among others, that Licensee maintain insurance to protect the Licensor.

Licensee commenced a related action against Licensor “to recover damages for delay in negotiating an access agreement relating to the license and for bad faith conduct preventing the petitioner from performing its work”[5]  Licensor asserted counterclaims alleging that Licensee caused damages to their property.[6]

In the RPAPL 881 proceeding, Licensor sought to suspend Licensee’s license “for failure to provide proof of required insurance coverage.” [7] Licensee moved to reinstate and extend the term of the license. The Supreme Court denied Licensor’s application for damages as a result of its failure to timely provide proof of sufficient insurance coverage.[8]  However, the Appellate Division found that Licensor “may have incurred damages, including attorneys’ fees, which are permitted as damages under RPAPL 881, as a result of the petitioner’s failure to timely provide proof of sufficient insurance coverage.”[9] The Appellate Division remanded the case back to the Supreme Court to address Licensor’s claim “for an award of damages and attorneys’ fees”.[10]

The important takeaway from this case is that a licensee seeking a license must provide proof of sufficient insurance to protect the licensor. Failure to do so promptly may result in damages incurred by the licensor, including, but not necessarily limited to, attorneys fees.   


Whether you are the property owner seeking the license or the adjoining property owner and whether you seek to negotiate a voluntary license or pursue a RPAPL § 881 proceeding, Jaspan Schlesinger Narendran LLP can help you address the many issues related to construction on boundary lines and the issuance of temporary licenses to perform such work.  If you need assistance, please contact Christopher E. Vatter at cvatter@jaspanllp.com or Laurel R. Kretzing at lkretzing@jaspanllp.com.  

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Christopher E. Vatter is a partner in Jaspan Schlesinger Narendran LLP’ s Municipal and Litigation Practice Groups, where he represents both private and municipal clients.  Mr. Vatter focuses his practice in the areas of complex commercial litigation, municipal law, personal injury defense, construction law and banking litigation.

Laurel R. Kretzing is a partner in Jaspan Schlesinger Narendran LLP’ s Municipal and Litigation Practice Groups, where she represents both private and municipal clients in a broad range of matters including personal injury defense, litigated real estate matters, construction matters and civil rights and municipal litigation.

[1] The material in this blog is meant only to provide general information and is not a substitute nor is it legal advice to you.

[2] 2023 N.Y. App. Div. LEXIS 5776 (2d Dep’t 2023).

[3] “RPAPL § 881 provides that ‘[w]hen an owner or lessee seeks to make improvements or repairs to real property so situated that such improvements or repairs cannot be made by the owner or lessee without entering the premises of an adjoining owner or his lessee, and permission so to enter has been refused, the owner or lessee seeking to make such improvements or repairs may commence a special proceeding for a license.’” Normanus Realty LLC v. 154 E. 62 LLC, 2023 N.Y. Misc. LEXIS 22715, *4 (Sup. Ct. N.Y. Cty. 2023).

[4] Matter of 269-273 14th St NY Corp. v. Stein, 2023 N.Y. App. Div. LEXIS 5776, *2.

[5] Id. at *2-3 (“The appeal from so much of the order as granted the petitioner’s [Licensee’s] motion to reinstate the license and denied that branch of Phung’s [Licensor’s] cross-motion which was to revoke the license nunc pro tunc is dismissed as academic because the license expired on December 26, 2020”).

[6] Id.

[7] Id. at *3.

[8] Id.

[9] Id. at *4.

[10] Id. at *5.

As covered in our Transparency-is-in-Your-Future series, Congress enacted the Corporate Transparency Act (“CTA”), requiring certain entities that are not otherwise exempt to file information about their beneficial ownership with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). On December 22, 2023, New York Governor Kathy Hochul signed into law a similar act, the LLC Transparency Act (the “NY Act”), requiring the disclosure of beneficial ownership information to the New York Department of State (“NY DOS”) by limited liability companies formed under the laws of the state of New York and foreign limited liability companies authorized to do business in the state of New York. Below is a brief summary of the NY Act.

What entities are affected by the NY Act?

Under the NY Act, a “reporting company” is defined as a limited liability company covered under the CTA (31 U.S.C.  § 5336(A)(11)(A)), as amended, and any regulations promulgated thereunder. This definition includes limited liability companies formed under the laws of the state of New York and foreign limited liability companies that have filed an application for authority with NY DOS. Curiously enough, the NY Act does not affect corporations or limited partnerships, which are also formed by filings with the NY DOS.

The NY Act defines “exempt company” to have the same meaning as under the CTA ((31 U.S.C.  § 5336(A)(11)(B). The CTA exempts most financial services institutions, including investment and accounting firms, securities trading firms, banks, and credit unions that report to and are regulated by government agencies such as the Securities and Exchange Commission, the Office of the Comptroller of the Currency, or the FDIC, as well as non-profit organizations and certain inactive entities. Additionally, an entity that (i) employs more than 20 full-time employees; (ii) filed in the previous year Federal income tax returns demonstrating more than $5,000,000 in gross receipts or sales in the aggregate; and (iii) has an operating presence at a physical office within the United States is exempt from reporting. As with the CTA, exemption under the NY Act is not automatic – in order to become exempt, a member or manager of the limited liability company will have to sign a statement of exemption and file such statement with NY DOS.

Who constitutes a “beneficial owner” under the NY Act?

The NY Act defines “beneficial owner” to have the same meaning as under the CTA ((31 U.S.C.  § 5336(A)(3)), which is defined as “an individual who, directly or indirectly, through a contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The term “indirectly” means that a reporting company will need to trace its ownership back through any entities in the ownership chain to identify the individual or individuals who own, ultimately own, or control the company.

The term “beneficial owner” does not include (i) a minor, if the minor’s parent or guardian provides the required information; (ii) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; (iii) an employee of the company and whose control over or economic benefits are derived solely from his or her employment; (iv) an individual whose only interest is through a right of inheritance; or (v) a creditor (only in their capacity as such).

What constitutes “beneficial ownership disclosure” under the NY Act?

The NY Act requires each reporting company file an initial report or beneficial ownership disclosure to identify each beneficial owner by (i) full legal name; (ii) date of birth; (iii) current business street address, and (iv) a unique identifying number from an acceptable identification document defined in the CTA (31 U.S.C. § 5336 (A)(1)). Acceptable identification documents include a non-expired passport issued by the United States or a foreign government, and a non-expired identification document issued by a State, local government or Indian Tribe.

When must the information be filed with NY DOS under the NY Act?

Domestic limited liability companies in existence on December 22, 2024 and foreign limited liability companies authorized to do business in New York on such date will have to file their beneficial ownership disclosure information or a signed statement of exemption by January 1, 2025.

Domestic limited liability companies formed after December 22, 2024 and foreign limited liability companies first qualifying for authority to do business in New York on or after such date will be required to file their beneficial ownership disclosure information or a signed statement of exemption at the time of formation or application for authority, as applicable, in New York. While the NY Act is not exactly a model of clarity (as it seems to state that the beneficial ownership information is to be included in the articles of organization or application for authority, which would make such information publicly available), we believe that a more reasonable interpretation of the NY Act would be that the articles of organization or application for authority would need to either confirm that the entity is an exempt company or that it has filed the required beneficial ownership information.

The NY Act permits reporting companies to file a copy of the report they filed with FinCEN pursuant to the CTA to satisfy the New York reporting requirements.

Are Reporting Companies required to update their beneficial ownership information?

Yes. While the NY Act is not particularly well written on this issue (as it seems to state that the  articles of organization or application for authority must be amended to reflect updated beneficial ownership information every time a change occurs in such information, which not only would make such information publicly available but could result in significant legal and filing fees for Companies that have frequent changes in such information), the NY Act does require that this information be current. As Section 211 of the NY Limited Liability Company Law gives LLCs 90 days to amend their articles of organization to reflect the events enumerated in such Section, and the NY Act amends Section 211 to include changes in beneficial ownership, presumably LLCs will have 90 days to report such changes. Given the somewhat lengthy time period, questions will inevitably arise regarding what needs to be reported. For example, if an individual ceases to be a beneficial owner within 90 days after first becoming a beneficial owner, would the Company need to report that such person was a beneficial owner even though by the time the report was filed they ceased to be such?

What are the penalties for failing to comply with the NY Act?

The NY Act establishes civil penalties for noncompliance. A reporting company which has failed to file the beneficial ownership disclosure as required for more than 30 days shall be shown as “past due” on the NY DOS records until an update report is filed. If the failure continues for more than two years, the company shall be shown as “delinquent” on the records of NY DOS after a notice of delinquency has been mailed to the last known business address of such reporting company, and such company has failed to file such information within 60 days of the mailing of such notice.  Such delinquency will be removed from the records of the NY DOS upon the delinquent reporting company filing an up-to-date beneficial ownership disclosure and paying a $250 civil penalty.The penalties are much less serious than those imposed under the CTA, which provides for criminal and civil penalties for willful noncompliance, provides that persons who knowingly provide false or fraudulent information or willfully fail to report complete or updated information may be fined $10,000 and/or imprisoned for up to two years, and imposes a civil penalty of $500 for each day that the violation continues.

An interesting question is how, exactly, the NY DOS will know when a report is past due when the NY DOS only knows of changes when they are reported to it. The most obvious example is a change of the business street address of a beneficial owner. Presumably the NY DOS is not assigning a team of employees to check business street addresses of beneficial owners on a 24/7/365 basis, even assuming there was some way that the NY DOS could ascertain such information. Likewise, we assume that the NY DOS is not scouring court records throughout the world (as beneficial owners could live anywhere) to check name change applications against their database of beneficial owner names. The NY DOS will know of changes in beneficial ownership information when they are informed of the change, at which point the entity will have cured the failure (including by paying the $250 fine, if applicable). Unless the NY DOS is acquiring information via telepathy or is omniscient, we don’t see how companies will ever be listed as past due, other than by a third party or disgruntled employee reporting a company as being in breach (which, given the de minimis consequences, doesn’t seem likely). The simple fix for this would be to require companies when filing bi-annual statements to confirm that there has been no change to their most recently reported beneficial ownership information, with the penalties set forth above for filing to provide either such confirmation or the updated information.

What should LLCs do to comply with the NY Act?

Prior to January 1, 2025, companies should check to see if NY DOS has issued regulations for compliance with the NY Act. Once the rules have been issued, entities should review the regulations to confirm whether they must file an initial report or are eligible to file for an exemption. Additionally, companies should keep updated records of the required information for each owner and enhance their compliance processes to ensure that the required information is being collected and reported to NY DOS in accordance with the NY Act (and FinCEN in accordance with the CTA).

Companies should also include language in their operating agreement or similar document that requires owners of the company to regularly provide any information required to comply with the NY Act. Additionally, companies may want to consider indemnification provisions if an owner fails to timely provide the required information or provides false or incomplete information. If such operating agreement contains a confidentiality provision, it should include an exception to permit the company to report the required information to NY DOS and FinCEN.

Hopefully the legislature will amend the NY Act to provide clarifications with respect to the issues identified above or the NY DOS will promulgate rules and forms to provide such clarification.

For further information or guidance on revising your policies, procedures, and operating agreements, please contact David Paseltiner or Rose Egan.

Governor Signs Bill Limiting Amount Which May Be Withheld For Retainage On Private Construction Contracts[1] 

On November 17, 2023, Governor Hochul signed a bill[2] which, among other things, limits the amount of retainage which may be withheld on private construction contracts which equal or exceed $150,000 to no more than five percent.  This bill amends Sections 756-a and 756-c of the New York State General Business Law which address prompt payment of contractor claims.  The bill also permits contractors to submit a final invoice for payment in full upon reaching substantial completion instead of final completion. In the event that the owner fails to release the retainage as required by the bill, the contractor shall be entitled to recover “interest at the rate of one percent per month on the date retention was due and owing.”

When entering into construction contracts, it is important to understand the impact of this new law. Jaspan Schlesinger Narendran LLP can help you in negotiating construction contracts. If you need assistance, please contact Christopher E. Vatter at cvatter@jaspanllp.com or Laurel R. Kretzing at lkretzing@jaspanllp.com.  

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Christopher E. Vatter is a partner in Jaspan Schlesinger Narendran LLP’s Municipal and Litigation Practice Groups, where he represents both private and municipal clients.  Mr. Vatter focuses his practice in the areas of complex commercial litigation, municipal law, personal injury defense, construction law and banking litigation.

Laurel R. Kretzing is a partner in Jaspan Schlesinger Narendran LLP’s Municipal and Litigation Practice Groups, where she represents both private and municipal clients in a broad range of matters including personal injury defense, litigated real estate matters, construction matters and civil rights and municipal litigation.

[1] The material in this blog is meant only to provide general information and is not a substitute nor is it legal advice to you.

[2] https://www.nysenate.gov/legislation/bills/2023/A4167

Continuing our Transparency-is-in-Your-Future series, we now turn our focus to the beneficial ownership reporting requirements established in the (i) Corporate Transparency Act (“CTA”) and (ii) related regulations adopted by U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).

FinCEN’s final rule is effective January 1, 2024. As this deadline approaches, we thought it would be helpful to take a deeper dive into the final rule to understand its requirements and exemptions. Our current topic is: who is a beneficial owner?

Who is a beneficial owner of a reporting company?

A “beneficial owner” of a reporting company is “any individual who, directly or indirectly, either exercises substantial control over such reporting company (“Substantial Control”) or owns or controls at least 25 percent of the ownership interests of such reporting company” (“25% Ownership”). Each (and every) individual that satisfies either of these two criteria and is not otherwise excluded, must be reported as a beneficial owner. FinCEN notes that at least one individual should satisfy the “substantial control” criterion.

A beneficial owner is not:

                (a)          a minor child, as defined under the law of the State or Indian tribe in which the reporting company is formed (or in which it is registered for a foreign reporting company); however, the reporting company must still report the required information of a parent or legal guardian of such minor child if such child has either Substantial Control or 25% Ownership;

                (b)          an individual acting as a nominee, intermediary, custodian or agent on behalf of another individual; however, the reporting company must still report the required information for the individual upon whose behalf such nominee, intermediary, custodian or agent is acting, if such individual has either Substantial Control or 25% Ownership;

                (c)          an employee, acting solely as an employee, whose substantial control over or economic benefits from such entity are derived solely from the employment status of the employee, provided that such person is not a senior officer as discussed below;

                (d)         an individual whose only interest in the reporting company is a future interest through a right of inheritance; however, the definition of ownership interest (discussed below) does broadly include other forms of future interests, options or other arrangements; or

                (e)          a creditor of such reporting company, who would otherwise constitute a beneficial owner, solely through rights or interests for the payment of a predetermined sum of money, such as a loan covenant or similar right that is intended to secure the right to receive payment or enhance the likelihood of repayment.

What is “Substantial Control”?

An individual exercises Substantial Control over a reporting company, if such individual:

                (a)          serves as a senior officer (e.g. president, chief financial officer, general counsel, or any other officer, regardless of official title, that performs a similar function);

                (b)          has authority to appoint or remove a senior officer or a majority of the board of directors or a similar body;

                (c)          has substantial influence or determines important decisions made by the reporting company; or

                (d)         has any other form of substantial control over the reporting company.

Examples of clause c (substantial influence over important decisions) include, but are not limited to, whether to (i) sell, lease or mortgage principal company assets, (ii) reorganize, dissolve or merge the company, (iii) amend the corporate governance documents (such as the bylaws, operating agreement or formation documents), (iv) issue equity or incur debt, (v) enter into or terminate substantial contracts, or (vi) expand into new lines of business or geographic areas.

Can Substantial Control be indirectly exercised?

Yes. An individual may exercise Substantial Control over a reporting company, directly or indirectly, including as a trustee of a trust or through control of one or more intermediary entities that separately or collectively exercise substantial control over the reporting company. FinCEN’s final rule also provides direct and indirect exercise of Substantial Control may be through board representation, control of a majority of the voting power, or any other contract, arrangement, understanding, relationship, or otherwise.

What is an “ownership interest”?

An ownership interest is broadly defined to include:

                (a)          any equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust; in each such case, without regard to whether any such instrument is transferable, is classified as stock or anything similar, or confers voting power or voting rights;

                (b)          any capital or profit interest in an entity;

                (c)          any instrument convertible, with or without consideration, into any share or instrument described in (a) or (b) above, any future on any such instrument, or any warrant or right to purchase, sell, or subscribe to a share or interest described in (a) or (b) above, regardless of whether characterized as debt;

                (d)         any put, call, straddle, or other option or privilege of buying or selling any of the items described in (a), (b) or (c) above, without being bound to do so, except to the extent that such option or privilege is created and held by a third party or third parties without the knowledge or involvement of the reporting company; or

                (e)          any other instrument, contract, arrangement, understanding, relationship, or mechanism used to establish ownership.

Before you ask – Yes, indirect ownership or control of ownership interests is covered in the FinCEN final rule as well.

An individual may directly or indirectly own or control an ownership interest of a reporting company through any contract, arrangement, understanding, relationship, or otherwise. For example, indirect ownership may be established through:

                (a)          joint ownership;

                (b)          another individual acting as a nominee, intermediary, custodian, or agent on behalf of such individual;

                (c)          a trust or similar arrangement that holds such ownership interest, either as (i) a trustee of the trust or other individual (if any) with the authority to dispose of trust assets or (ii) a beneficiary who: (x) is the sole permissible recipient of income and principal from the trust, (y) has the right to demand a distribution of or withdraw substantially all of the assets from the trust, or (z) a grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust; or

                (d)         ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control ownership interests of the reporting company.

How do I calculate my total ownership interest of a reporting company?

Step 1: Add the total ownership interest that you, directly or indirectly, own or control, presently and treat any options or similar interests as exercised.

Step 2: Divide the sum from Step 1 by the total outstanding ownership interests of the reporting company.

Step 3: Multiply the quotient from Step 2 by 100 to determine your percentage of ownership interest in the reporting company.

Note:     For any reporting company that issues capital or profit interests, the individual’s ownership interest is the capital or profit interests calculated as a percentage of the total outstanding capital and profit interests of the reporting company (following the steps as described above).

For any reporting company that issues shares of stock, the applicable percentage of an individual’s ownership is the greater of: (a) the individual’s total combined voting power of all classes of ownership interest as a percentage of total outstanding voting power of all classes of ownership interests entitled to vote, or (b) the individual’s total combined value of the ownership interests as a percentage of the total outstanding value of all classes of ownership interests.

Finally, if the circumstances within the reporting company do not allow the calculations described in the two preceding paragraphs to be determined with reasonable certainty, then any individual who owns or controls 25 percent of more of any class or type of ownership interest should be deemed to own or control 25 percent of more of the reporting company, and thus be reported as a beneficial owner of such reporting company.

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In the next few months, each entity that is a reporting company should collect the necessary information for itself and its beneficial owners. To ensure compliance with these regulations, all entities should review their internal procedures and organizational documents. Ideally, an entity’s corporate governance documents (e.g. shareholders’ agreement, operating agreement, partnership agreement, etc.) will require its owners to timely disclose the information required to be provided under the regulations and provide for consequences for failing to do so.

For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner or Rose Egan.

The Apple TV streaming series Ted Lasso is unlike any television show I’ve encountered. With the explosion of online streaming content, many high quality streaming series (GoT, Ozark, Chernobyl, Bloodline, etc.) pride themselves on grittiness and high drama.  Ted Lasso is the antithesis.  The series consistently provides uplifting, feel-good viewing on a humorous backdrop.  Compared to our current polarized environment, Ted Lasso promotes empathy, kindness, and understanding (while being enjoyable and funny).  

Who, what is Ted Lasso? I’ll tell you…AND I will tell you the lessons I, as a 35-year plus transactional legal veteran, learned from the wonderful series when ruminating about my transactional law practice.

However, before we go any further, there are Ted Lasso spoilers ahead and I (as your self-appointed streaming/content counsel) advise you to continue reading at your streaming peril unless and until you complete the three-season series.

The titular character (Ted) is a successful NCAA Division II (American) football coach.  He is hired away by the owner (Rebecca) of a failing British soccer club with the goal of making the team flounder to upset her ex-husband (Rupert) from whom she received the club in divorce settlement. His star players are Jaimie Tartt and Roy Kent. The club’s kit man (locker room attendant) is Nate and the team’s PR director is Keeley. Along his sojourn from his success at Wichita State football, Ted brings along his assistant, Coach Beard.  Throughout the team’s struggles, there are uplifting lessons to be learned and laughs to be had (including some of the best scenes in comic streaming history).

Now, a brief digression (which served as my muse for writing this piece) follows. Ted is from Kansas.  On his journey from home, he brings along his constant companion Coach Beard to a land run by Rebecca where he meets meek Nate, not so smart Jamie, and heartless Roy. SOUND FAMILIAR? Yes, I recognized that Ted Lasso is the Wizard of Oz (especially in Season 3 ). It is not a determining or dominant factor throughout the series; but the Wizard of Oz undercurrent is constant. I’d be happy to debate with you all of the ways in which the show draws upon the Wizard of Oz: overtly in the “There’s no place like home” signs around the Richmond football team stadium and Ted’s red sneakers (clicked together three times during a victory dance) as well as to much more subtle callbacks.

However, we are not going to go down that rabbit hole (pun intended) and dig deeply into things like how “Scarecrow” Jamie Tartt progressed from a simpleton to becoming one of the more thoughtful and astute characters throughout the show (after getting his metaphorical brain) or why Keeley can be viewed as the nice witch Glenda.

When questioning my land of Oz hypothesis, I started to think about how Ted Lasso (above and beyond the wonderful messages and life-coaching advice the show overtly renders episode to episode) lends to other walks of life. In so doing, I settled upon my own legal practice. Let’s take the major Ted Lasso  characters one by one and see how their attributes harken to transactional legal practice:

“Dorothy” Ted:  The Dorothy in any negotiated transaction is each lead attorney in the transaction. Counsel must navigate a number of obstacles (and adapt using lessons learned along the way) to achieve a favorable “go home” closing result for her client.

“Scarecrow” Jamie: Counsel must draw upon knowledge base and augment it from time to time.

“Lion” Nate: In any negotiation, a transactional attorney must pick the appropriate deal points to display courage and effectively advocate for client objectives.  Remaining neutral throughout the course of a deal as a rule will fail when faced with a situation that calls for one’s roar of controlled aggression.

“Tin Man” Roy:  In negotiating a transaction, counsel must be able to empathize and understand the counterparty’s desires for certain terms.  Having this type of heart/understanding enables your side of the transaction to achieve its own most-desired negotiated deal points.

“Toto” Beard –  Every negotiating advocate Dorothy needs a trusted support system including junior counsel, paralegals, technology, and support staff.

“Be a goldfish” –  One Lasso saying is “be a goldfish.”  The basis for Ted’s pithy advice is that there are situations where having a short memory is beneficial to your maturation as a person and professional.  Apparently, goldfish have a memory span of only a handful of seconds.  Many times, while I am slugging out deal points in a financing or M&A transaction, the other party will digress and focus on the history of negotiations or “how we got here.”  In that situation, it may very well be best to focus the transaction parties on the NOW (rather than the past)…be a goldfish. 

The entirety of the subject transaction is the Richmond UK suburb of London (Oz) and serves as the landscape for the evolving journey of getting a significant transaction closed to the satisfaction of your client.  It is in Oz (Richmond, the deal) that you/Dorothy navigate the steps that your Wizard (Rebecca, your client) laid out in order to overcome the hurdles to achieve a homecoming closing.  Chief among those hurdles may be the Wicked Witch of the West — that’s Ruppert (heck, in the show he owns the West Ham Football Club archrival). 

I liken the Ruppert hurdles in a transaction to things like adverse discoveries in due diligence, difficult to obtain third party consents, regulatory approvals, financing contingencies, tax planning, documentation, and purchaser/seller remorse.  I BELIEVE a competent transactional attorney needs to be smart, courageous, empathetic, and able to draw upon her support team when needed in order to step out of  the Crown and Anchor Pub (metaphorical Munchkinland) and touch down in a deal closing  (metaphorical Kansas).

Look for my next blog release “Game of Thrones, Commercial Litigation, and You” coming in November 2023.

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Author Robert Londin is a partner in the Jaspan Schlesinger Narendran LLP Commercial Transactions Practice group regularly negotiating M & A, Emerging Growth Company, Executive Compensation, Private Equity, Secured Lending and Complex Litigation Settlement Transactions.

As previously discussed here, Congress enacted the Corporate Transparency Act (the “Act”) to require certain entities to file information about its beneficial ownership with the intent to prevent and combat money laundering, corruption, tax fraud and other illicit activity. Pursuant to the Act, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) has adopted regulations and will establish a private national database for the information collected.

FinCEN’s final rule is effective January 1, 2024. As this deadline approaches, we thought it would be helpful to take a deeper dive into the final rule to understand its requirements and exemptions. In the coming weeks, we will discuss various related topics including who is a beneficial owner, what entities are exempt and why to apply for a FinCEN identifier.

Who must file the report with FinCEN?

Each reporting company is responsible for filing accurate and complete information with FinCEN regarding the reporting company itself and the beneficial ownership of such company. An individual acting on behalf of the reporting company must certify that the information submitted is true, correct and complete.

A “reporting company” is “any entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or tribal jurisdiction,” and includes corporations, limited liability companies, limited partnerships and, where they exist limited liability partnerships. A reporting company can be either a domestic entity or a foreign entity formed under the law of a foreign country that registers to do business in any state or tribal jurisdiction.

A “beneficial owner” is any individual who, directly or indirectly, either exercises substantial control or owns or controls at least 25 percent of the ownership interests of a reporting company.

What information must be filed with FinCEN?

Reporting companies must provide identifying information about the company itself and its beneficial owners. If the company was formed on or after January 1, 2024, then the report must include information on the company applicant (as defined below) as well.

A reporting company must provide, its:

                (i)           full legal name,

                (ii)         all tradenames and doing business names regardless of whether such name is registered with any governmental authority,

                (iii)        current street address for the company’s principal place of business in the United States. If the company’s principal place of business is outside the United States, then the primary location in the United States where it conducts business. Companies cannot provide P.O. boxes or third party addresses (such as the address for the company formation agent),

                (iv)        jurisdiction of formation, whether state, tribal or foreign. Foreign reporting companies must also provide the jurisdiction where it first registered to do business in the United States, and

                (v)         taxpayer identification number.

For every beneficial owner, reporting companies must provide, his or her:

                (i)           full legal name,

                (ii)         date of birth,

                (iii)        current residential street address, and

                (iv)        the unique identifying number and the issuing jurisdiction from one of the following documents (including an image of such document): (a) a non-expired U.S. passport, (b) a non-expired identification document issued by a state, local government or Indian tribe, (c) a non-expired driver’s license issued by a state, or (d) if none of these documents have been issued to such individual, then a non-expired, foreign-issued passport.

Additionally, reporting companies formed on or after January 1, 2024, must provide the above information for every individual who directly files the document that creates the reporting company (the “company applicant”). If the company applicant formed or registered the company as part of their business, then the street address of such business may be provided instead of the company applicant’s residential street address.

When must the reporting company file the report with FinCEN? (Below has been revised as of January 12, 2024)

Where must the reporting company file the report with FinCEN?

As of January 12, 2024, FinCEN is now accepting beneficial ownership information reports. Filing is simple, secure, and free. To find out more about the reporting process, visit https://www.fincen.gov/boi.

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In the next few months, each entity that is a reporting company should collect the necessary information for itself and its beneficial owners. To ensure compliance with these regulations, all entities should review their internal procedures and organizational documents. Ideally, an entity’s corporate governance documents (e.g. shareholders’ agreement, operating agreement, partnership agreement, etc.) will require its owners to disclose the information described above.

For further information or guidance on revising your policies, procedures, and corporate governance agreements, please contact David Paseltiner or Rose Egan. You can follow our blog for more information as it becomes available.