In the latest turn of events, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. This announcement continues Treasury’s commitment to reducing regulatory burden on businesses, as well as prioritizing under the Corporate Transparency Act reporting of BOI for those entities that pose the most significant law enforcement and national security risks.

No later than March 21, 2025, FinCEN intends to issue an interim final rule that extends BOI reporting deadlines, recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.

At this time, we are recommending a wait and see approach to comply with the BOI filing requirements. As always, our office will keep you updated.

Again, the Courts have reversed their position on a stay of the requirement to file beneficial ownership information reports (“BOI’s”).

On December 3, 2024, in the-case of Texas Top Cop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex:), the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction to stop the requirement to file BOI reports by December 31, 2024.

On December 23, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction entered in the case of Texas Top Cop Shop, Inc. v. Garland, pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order.  On the basis of the December 23, 2024, ruling, FinCEN extended the deadline to January 13, 2025.

On December 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024, order granting a stay of the preliminary injunction. Accordingly, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file BOI’s with FinCEN.

As always, we are ready to assist clients in determining whether or not to file BOI’s and to complete any BOI filings that are requested. 

The Fifth Circuit Court of Appeals granted a Department of Justice (DOJ) motion to lift an injunction, suspending the January 1, 2025, deadline to file the beneficial ownership information (BOI) reports, put in place by a district court ruling December 3, 2024, that the DOJ had appealed. 

The deadline for most reporting companies to file beneficial ownership information (BOI) reports was extended to January 13, 2025, by the Financial Crimes Enforcement Network (FinCEN), hours after a Monday court ruling reinstated the reporting requirement. 

After the Fifth Circuit order, FinCEN, which enforces the Corporate Transparency Act (CTA), announced that, for reporting companies that had been required to supply BOI information by January 1, their new filing deadline was January 13, 2025. 

Reporting companies created or registered in the United States on or after December 3, 2024, and on or before December 23, 2024, have an additional 21 days from their original filing deadline to file initial BOI reports with FinCEN. 

At this time, our office stands ready to assist in the filing of the BOI reports by those required to do so. In the meantime, we will keep posting updates as they become available.

As we have previously reported, any existing legal entity created or registered to do business in the United States on or after January 1, 2024, has to file beneficial ownership information (BOI Report) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) prior to Wednesday, January 1, 2025, pursuant to the Corporate Transparency Act (CTA). Failure to file timely amend or correct a BOI report with FinCEN subjects the reporting company to potential civil, and in some cases criminal penalties from FinCEN.

On December 3, 2024, U.S. District Judge Amos Mazzant of the Eastern District of Texas turned the CTA and the FinCEN BOI Reporting Rule on their heads, issuing a preliminary injunction that

1. suspends the requirement to file the BOI Report
2. stays the January 1, 2025, compliance deadline
3. declares that “reporting companies need not comply with the January 1, 2025, reporting deadline pending further order of the Court.”

The Court determined that the CTA and the BOI Reporting requirement are likely unconstitutional for purposes of a preliminary injunction. Judge Mazzant added that he has not yet made “an affirmative finding that the CTA and the Reporting requirement are contrary to law or that they amount to a violation of the Constitution.” On the basis of his finding that the CTA and Reporting requirement are likely unconstitutional, however, District Judge Mazzant determined that FinCEN should be enjoined from enforcing the BOI Reporting requirement and that the January 1, 2025, compliance deadline under the BOI Reporting requirement should be stayed.

A NATIONWIDE INJUNCTION

The most surprising part of Judge Mazzant’s order is his determination that the injunction should apply nationwide. Because one of the Plaintiff’s membership interests extended across the country, Judge Mazzant held that the extent of the constitutional violation Plaintiffs alleged was best served through a nationwide preliminary injunction.

As expected, the Defendants, on December 5, 2024, appealed the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit.

The key question, then, is whether the Fifth Circuit will act on this appeal before the BOI Reporting requirement of the January 1, 2025, compliance deadline and if FinCEN will otherwise delay the January 1, 2025, deadline.

Accordingly, we continue to recommend that companies assess their BOI reporting obligations and either voluntarily file their BOI report or at a minimum be ready to report and be in compliance with the CTA requirements should the injunction be listed or revised. We continue to closely monitor the situation and will provide updates as new information becomes available.

Please reach out to Avery, Amanda, Alexa or John with any questions.

Purchasing a business is an exciting undertaking that comes with the promise of growth, independence, and financial rewards. However, it’s important to note that it also comes with complex legal and financial processes. If these are not handled properly, it could lead to significant risks and setbacks.

Whether you are purchasing a small mom-and-pop shop or acquiring a larger company, it’s critical to have an experienced attorney on your side. The attorneys at Colorado Law Group can help ensure that the transaction is successful and protect your long-term interests.

Below, we’ll explore the top 5 reasons you need an attorney when buying a business:

Proper Structuring of Deal

One of the most critical aspects of purchasing a business is determining the proper structure for the transaction. This will impact taxes, liability, and future operations. A business attorney can guide you through these considerations to ensure the deal structure aligns with your financial, tax, and legal goals.

• Asset vs. Stock Purchase: in an asset purchase, specific assets are acquired without the liabilities. In a stock purchase, you take ownership of the entire company including debts and obligations. An attorney can help you weigh the pros and cons of each type depending on your specific situation.
• Tax Implications: The deal structure will also impact your tax obligations. An attorney, along with a tax professional, can help you understand the potential tax consequences and structure the deal to minimize tax liability and maximize your tax basis.
• Organizational Structure: How you structure your ownership of the required business will affect your future tax consequences in the operating of the business.

Thorough Due Diligence

When buying a business, conducting due diligence is one of the most important steps. It involves verification that the business is as represented by the seller, including intellectual property rights, Real Estate rights, legal obligations, and more. An attorney plays a crucial role in this process by:

• Reviewing financial statements: An accountant can analyse the numbers, but an attorney will ensure that the seller represents there are no hidden risks, such as unreported debts, unpaid taxes, or outstanding lawsuits.
• Evaluating legal risks: An attorney can review the legal history of the company including contracts, leases, and employee agreements, to ensure that there are no significant legal liabilities that could impact your ownership.
• Ensuring compliance: An attorney can insure the seller verifies that the business is in compliance with state and federal laws, local ordinances, and industry regulations.

 If you do not conduct proper due diligence, you may unknowingly purchase a business that is financially unstable or legally compromised.

Negotiating Terms of the Purchase Agreement

The purchase agreement is legally binding. It outlines the terms and conditions of the sale, including the purchase price, payment terms, and transfer of assets and liabilities.

It is essential to have an attorney draft, review, or negotiate the purchase agreement because they can:

• Protect your interests: An experienced attorney will ensure that the contract terms are fair and protect your interests. They can address issues such as indemnification clauses, which help protect you from possible legal claims following the sale and non-compete agreements that prevent the seller from starting a competing business in the future.
• Clarify ambiguities: An attorney can ensure that all terms are clearly defined to prevent misunderstandings or disputes in the future.
• Adjust terms in your favor: If certain aspects of the deal are unfavorable, an attorney can negotiate to improve the terms, including adjusting the payment schedule, limiting liabilities, or securing additional warranties from the seller.

If you do not have a thorough legal review, you may sign an agreement that exposes you to unnecessary risks or financial burdens.

Handling Regulatory Requirements and Licenses

Most businesses require various regulations, licenses, and permits, especially if they operate in a highly regulated industry. When buying a business, it is important to make sure that all necessary licenses are transferred and that the business is in compliance with applicable regulations. An attorney can help by:

• Ensuring license transfers: depending on the nature of the business, licenses/permits may need to be transferred or reissued. An attorney can handle this process, ensuring the transition is smooth and there are no operational delays.
• Navigating industry regulations: different industries have unique regulatory requirements. An attorney familiar with your business’s sector can ensure that the purchase doesn’t violate regulatory guidelines/requirements, helping you avoid fines or operational shutdowns.
• Addressing environmental/zoning laws: In some cases, there are zoning laws/environmental regulations to consider. An attorney will ensure compliance with these laws before finalizing the transaction.
• Assessing Intellectual Property: An attorney can ensure you knew what, if any, intellectual property you are acquiring.

If you ignore these regulatory issues, it could lead to costly penalties, license revocations, or even a shutdown of your newly acquired business.

Minimizing Risk and Liability

The primary reason to hire an attorney when buying a business is to minimize risk. Even a well-established business may have hidden dangers, from unresolved lawsuits to undisclosed debts. An attorney can help identify these risks and mitigate them before you finalize the purchase, including:

• Reviewing employment contracts: An attorney will evaluate existing employment contracts, ensuring you are not inheriting unfavorable terms that may lead to future disputes with employees.
• Addressing liabilities: An attorney will ensure that liabilities are properly disclosed and appropriately handled during the sale.
• Limiting exposure: An attorney will reduce your exposure to risks after the sale, whether through negotiating liability limits or indemnification clauses.
• Tax Consequences: An Attorney can assist you in taking advantage of tax benefits in acquiring and operating the business.

When buying a business, an attorney can help safeguard your investment and give you peace of mind as you embark on your new business venture.

Secure Your Business Future: Contact Colorado Law Group Today

In conclusion, purchasing a business is a complex transaction with significant financial and legal implications. An experienced attorney can help ensure that the deal is structured properly, due diligence is thorough, and your interests are protected every step of the way. If you are considering purchasing a business, contact Colorado Law Group to partner with a legal expert.

On July 8, 2024, the Financial Crimes Enforcement Network (“FinCEN”) released an interpretive update to the beneficial ownership information (“BOI”) reporting requirement applying to legal entities that have been dissolved or otherwise ceased to exist after January 1, 2024. Some view this update as expanding the reporting requirement, while others view this interpretation as a clarification on the prior FAQs relating to dissolved or inactive entities.

Prior to the new guidance, FinCEN FAQs stated that the BOI requirements applied to entities that qualified as inactive entities for reporting purposes if they were formed prior to January 1, 2020. This guidance was not enough to provide clarity on whether a dissolved entity would be required to report, instead providing ambiguity to those businesses that were formed prior to January 1, 2020, but dissolving prior to January 1, 2024.

FinCEN’s interpretive guidance states that any reporting company that was not “formally and irrevocably” dissolved prior to January 1, 2024, must file a BOI report within the deadlines set forth in the requirements. This requirement includes business that may have ceased conducting business, hold zero assets, or be administratively dissolved. For a company to be considered non-existent, it must have “formally and irrevocably” dissolved, which typically involves filing dissolution paperwork, receiving confirmation of dissolution, paying related taxes or fees, ceasing business operations, and liquidating assets. Administrative dissolution or suspension is not enough for an entity to be considered “ceasing to exist” as a legal entity unless it becomes permanent.

Still unsure if your business is required to report?

Colorado Law Group is here to answer any questions you have regarding your business, and any reporting requirements. Colorado Law Group has become your one stop shop for all business-related legal questions, and our Business Compliance Solutions program specializes in your state and federal reporting requirements. Please call today for a consultation with one of our experienced business attorneys.

What does this mean for you and your business?

We are here to help.

Please also note the following warning posted by FinCEN: 

With certain exceptions, Colorado law prohibits the enforcement of covenants not to compete.  The assumption is that the State of Colorado wishes to have its citizens engaged in gainful employment.

Specifically, Colorado Revised Statute § 8-2-113 provides that “it shall be unlawful to use force, threats or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit.”  The Statute further goes on to provide that any covenant not to compete which restricts the right of a person to receive compensation for performance of skilled or unskilled labor for any employer shall be void except for the following: (1) any contract with the purchase and sale of a business or the assets of a business; (2) any contract for the protection of trade secrets; (3) any contractual provision providing for recovery of the expense of educating and training of an employee who served as an employer for a period less than two years; and (4) executive and management personnel officers and employees who constitute professional staff to executive and management personnel.  The Statute provides for a fifth exception related to the practice of medicine.  Specifically, while a physician cannot be prohibited from practicing medicine, he or she may be liable to a previous practice for damages caused by his/her termination of their previous employment including, but not limited to damages related to competition.

The focus of this article is on covenants not to compete in the context of a sale of a business.  In the vast majority of transactions involving the sale and acquisition of a business, the buyer should always bargain for a covenant given by the seller of the business not to compete in the same or similar business for a period of time in an agreed upon geographical area.  In most cases, substantial value exists in the business’ base of established customers, reputation, routines and trade secrets.  This value beyond the physical assets of the business is sometimes referred to as “goodwill.”  The value of this “goodwill” is a significant part of what the seller offers to the buyer and covenants not to compete protect the value of such “goodwill.”

The three critical components of a covenant are as noted above, the scope of the prohibited business activities, the geographical limitation of the covenant and the length of time of the covenant.  With respect to the scope of the covenant, the restrictions are typically limited to the definition of the activities of the business when purchased, subject to any negotiated modifications.  The geographical limits to the covenant typically cannot be overly broad and are usually limited to the existing geographical foot print of the business at the time of the sale of the business.  Again, that can be modified by agreement to some degree.  Finally, the covenant must be a reasonable length.  Typically five years is standard.  Although in the sale of a business context, Colorado courts have found reasonable covenants not to compete for three years in a twenty-mile radius, for five years throughout a designated area; for five years in a single county; for five years in a fifty-mile radius; and, for ten years throughout Colorado. 

A covenant not to compete, supported by consideration, is presumed reasonable.  The party challenging enforcement of the covenant bears the burden of showing that the covenant is unreasonable.  Colorado law presumes that a party’s breach of a covenant results in an irreparable injury, for which legal remedies are inadequate.  The buyer is entitled to injunctive relief and such relief is appropriate whether or not the buyer proves damages.  The proper measure of damages is the purchaser’s loss of profit attributable to the breach.  The buyer of a business may later assign a covenant not to compete if he/she later sells the business to a third party, if the covenant permits assignment.  The covenant will pass to a new buyer and the new buyer may enforce the covenant. 

Finally, on the sale of a business, one of the items negotiated is an allocation of purchase price.  It is typical that very little of the purchase price is allocated to a covenant not to compete as it results in ordinary income to the seller of the business but retains the same fifteen year amortization that is otherwise assigned to the goodwill of the business outside the value of the covenant not to compete.  Therefore, it is important in drafting the actual agreement outlining the covenant not to compete, to provide that damages are not limited by the amount of the purchase price allocated to the covenant, in the event of a violation of the covenant. 

Again, even though covenants not to compete are not favored in Colorado, covenants related to the sale of a business are generally enforceable in Colorado. 

– John M. Stinar, Esq.

We live in a litigious society. We see news stories about the latest lawsuit, and how a jury awarded a zillion dollars for something that appears minor. (Paging, the McDonald’s My coffee is too hot award.) There are also social networking sites dedicated to spreading the word about frivolous law suits. (https://www.facebook.com/ColoradoLawsuitAbuseWatch?) Countless clients, after a suit is over shake their heads wondering why they had to go through it. While risk cannot be eliminated, there are a number of steps that should be taken to try to minimize a businesses’ personal liability.

First, what kind of business are you in, and does the use of an entity (a corporation, a limited liability company, a limited partnership, etc) decrease your exposure? Generally an individual is not responsible for corporate (or other entity) debts or liabilities. But be careful: you are always responsible for your own actions. A quick example is seen in the construction industry. There, the builder (definitions vary) still owes his client a duty to build in a workman like manner, in spite of the fact the he has formed an entity to attempt to minimize liability. Forming an entity may allow you to take the first step to minimizing personal liability and keeping any debt and exposure at the entity level. Also, beware of forming the entity, by yourself. These are typically fine, if there are no other owners, but the agreements in the entities establish each of the owner’s rights, duties and liabilities among them. This is why caution should be taken before resorting to online forms.

Second, get the appropriate insurance, and the right amount of insurance. Learn what kind of insurances are available, and equally important, learn what the real expectations you should have from those policies. It is also important to know what kinds of policies exist for your business. You should have this discussion with your insurance broker, others in your business, and even your attorney. Remember, however that with every policy, there are exclusions, limitations, and exceptions.

Third, before signing any document, read it, understand it, and if it is something you are not familiar with, determine whether you should seek to have it reviewed. Countless clients ask for clarification about what a contract means after signing. Leases, promissory notes, personal guarantees, purchase orders, sales contracts, for example, can be difficult to understand, especially the first time that you are presented with one. Take the time to review the document, and understand what it means. Are there terms of art? Was it drafted to that is a fair document, or is it boiler plate? What obligations are you signing up for? Can terms be negotiated that help you or offer protection?

Fourth, do not be afraid to ask for advice. I recall a client coming to me after firing an employee, and asking what he should do about an employee issue. He had failed to have an employment agreement, an employee manual, and had failed to document the employee’s continued transgressions. Unfortunately, this employee had sued a prior employer, and knew the system. My client was ultimately successful, but this was after the matter went to trial. Advice on how to discipline an employee, and to document employee’s tardiness, etc would have made the dispute much easier to defend, or could even have prevented the ex-employee from bringing suit. You may also be surprised at how friendly your competitors are if you approach them, and ask for advice. There are several trade organizations where business owners often more than happy to help one another out.

Fifth, if you are going into business with a partner, put your agreement in writing. Spend the time to negotiate the deal points. Any attorney will tell you that putting together a company is much easier, than seeing one come apart. In the beginning, most agreements are amicable, as everyone seems to want to complete the deal. When there is a dispute among owners, then you will have to live up to what you agreed to. What is the buy out process? What rights does a minority owner have? What can the majority owner do without the consent of all of the other owners? These are all issues that should be agreed to ahead of time and reduced to writing.

While it is not possible to eliminate the risk of running a business, there are steps to minimize it. Determine whether your business will benefit by using an entity. Talk with someone with experience about your insurance needs. Read, understand and turn to others to help you with the meaning of documents before you sign them. Talk with others when dealing with new situations. By following these steps, you may be able to avoid being the next headline or being in front of a jury of your peers.

The average person has likely never heard of the Federal False Claims Act (the “FCA”). 31 U.S.C. §§ 3729 – 3733. Yet, it will likely touch the lives of most Americans directly or indirectly at some point.

The FCA imposes liability on individuals and companies who defraud governmental programs and is widely used in the context of health care, military and other governmental spending programs. It is estimated that our government has recovered in excess of $33 billion dollars since the FCA’s amendments in 1986.

Congress enacted the FCA during the Civil War to combat fraud against the federal government by suppliers to the Union Army. During the Civil War, corrupt contractors sold the Union Army lame or sick horses and mules, defective rifles and ammunition, and spoiled provisions. In an effort to curtail such actions, Congress enacted the FCA. Because it was passed during the Lincoln administration, it is also known as the Lincoln Law. For its first one hundred years, the FCA was used relatively sparingly as an enforcement tool. The FCA was called upon with more frequency, albeit ineffectively, during World War II. It was not until the FCA was dramatically revamped in 1986 that the federal government began to reap the benefits of large FCA recoveries.

The 1986 amendments to the FCA came on the heels of the highly publicized accounts of abuses in the defense contracting industry, with the government allegedly being overcharged by thousands of dollars for items such as hammers and toilet seats. The 1986 amendments significantly expanded the role of whistleblowers (called relators), increased financial incentives for the relators, increasing the penalties paid to the government per fraudulent submission/occurrence, and reduced a number of the roadblocks that had prevented successful outcomes in the past.

Since the 1986 amendments, the FCA has become our government’s most effective and successful tool in combating fraud, waste, and abuse in federal spending. The relator now plays a crucial role in FCA litigation. Because the government lacks the resources and information to identify all potential violations of the FCA, it relies on the relator to be its eyes and ears. The relator can receive from 15-25 percent of the amount recovered. It is estimated that relators have collected upwards of $2 billion in statutory rewards since 1986.

Initially the FCA was used primarily against defense contractors. However, that focus shifted in the late 1990’s to health care fraud. Close to one-half of all recoveries since 1986 and the majority of the largest settlements (some of which are pharmaceutical settlements) have come from health-care related cases. As the health care industry expands to meet the needs of the aging baby boomer population, one can expect to see even more FCA litigation in the health care industry.

Currently, the civil penalty, per violation, ranges from $5,000 to $10,000, plus treble damages that the Government sustains. There can be numerous violations in one invoice or submission to the government for payment. Indeed, the average Medicare submission contains numerous line items and the average defense contractor submission can contain upwards of hundreds of line items, each of which could be deemed individual violations of the FCA. The penalties add up quickly, making for large recoveries for the government.

The FCA was amended in 2009 to further reduce any hurdles to a successful recovery by broadening measures within the FCA, to include expanding the scope of liability and broadening the definition of the term “claim”; and increasing the protection for relators to include not only employees, but to also include contractors and agents.

The FCA expanded again in 2010 with the enactment of the Patient Protection and Affordable Care Act (“PPACA”). Prior to the PPACA, a relator’s claims could be dismissed or barred if the cases were based on a public disclosure from public hearings or news reports. After the enactment of the PPACA, the public disclosure bar no longer applies. Additionally, the PPACA broadened the definition of an “original source” from “direct and independent knowledge of the information on which the allegations are based” to “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”

With these amendments, any overpayment, whether accidental or otherwise, that is not returned, could be viewed as a violation of the FCA, subjecting a person to substantial penalties. Additionally, these amendments now open the door for any violation under the federal Anti-Kickback Statute to also be viewed as a violation of the FCA.

Because of the ever-expanding Federal False Claims Act, those persons or businesses who deal directly with the federal government should take necessary steps to verify all submissions that will be made to the government for payment or approval, before the submission is made.

Jacqueline Gaithe has a varied practice which includes commercial litigation.