Business Litigation

The Corporate Transparency Act (CTA), which took effect on January 1, 2024, represents a significant shift in the regulatory landscape of U.S. businesses. This legislation, aimed at thwarting financial crimes such as money laundering and tax evasion, mandates that companies operating within the U.S. disclose their beneficial owners. While the intent of the CTA is to enhance transparency and combat illicit financial activities, its implementation has sparked significant legal controversies, culminating in the landmark case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. Mar. 1, 2024.). On behalf of the Department of the Treasury, the Justice Department filed a Notice of Appeal, on March 11, 2024, to the United States Court of Appeals for the Eleventh Circuit.  

The Core of the Corporate Transparency Act Controversy

In the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. Mar. 1, 2024.), the court ruled that the Corporate Transparency Act exceeded Congress’ authority under Article I of the Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments. The CTA, which was aimed at preventing financial crimes by requiring most entities incorporated under State law to disclose personal stakeholder information to the Treasury Department, was challenged on the grounds that it intruded on areas traditionally left to the states, such as corporate formation. The court drew parallels with the Supreme Court’s decision in Bond v. United States, 564 U.S. 211 (2011), which held that federal law should not intrude on local criminal activity unless Congress has clearly indicated that the law should have such reach. The court found that the CTA converted a significant amount of traditionally local conduct into a matter for federal enforcement and involved a substantial extension of federal police resources.  On appeal, the government is likely to re-assert that the CTA falls within Congress’ power to regulate national security and foreign affairs, as well as interstate commerce. The Treasury had previously argued that Congress rationally concluded that the ability of certain legal entities to withhold beneficial ownership and applicant information, taken together, substantially affects interstate commerce. However, the court disagreed with this argument, stating that the act of forming a corporation is not an economic activity that might, through repetition elsewhere, substantially affect any sort of interstate commerce. The court also disagreed with the Treasury’s argument that the CTA was necessary and proper to carry out Congress’ foreign affairs powers.

Immediate Implication for Businesses

Though the regulation was deemed unconstitutional, FinCEN, the federal agency responsible for collecting ownership and management data through Beneficial Owner Information (BOI) reports, has clarified that the court’s decision is limited to the plaintiffs involved in the lawsuit. Consequently, the requirement to submit the BOI report remains in effect, outlined in 31 C.F.R. § 1010.380. New businesses formed in 2024 are required to submit their BOI report to FinCEN within 90 days of their establishment. Thus, these new entities cannot delay their compliance in anticipation of the appeals process, which is not expected to conclude until at least the fall. For businesses established before 2024, the deadline to file is extended until January 1, 2025. Non-compliance with these requirements could lead to severe penalties, including substantial fines and potential imprisonment.  The current fines are $500 per day up to $10,000 and 2 years in prison.  It is conceivable that plaintiffs from various states might initiate further lawsuits challenging the CTA. For example, on March 26, 2024, the Small Business Association of Michigan and other plaintiffs filed a complaint in the United Sattes District Court for the Western District of Michigan challenging the CTA on a variety of constitutional grounds. Consequently, the definitive ruling on the CTA’s constitutionality will probably be issued by the U.S. Supreme Court, particularly if Congress fails to amend the act’s provisions to address constitutional concerns.

Conclusion

The case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. Mar. 1, 2024.) provides a legal reference point for the implementation of the Corporate Transparency Act. With the appeal pending, businesses should remain vigilant and prepared to adjust their compliance strategies based on the final outcomes. As the legal battles continue, staying informed is crucial. We recommend consulting with legal experts and following updates on this case as they develop.   The simplest and safest solution is to go online and provide the basic information.  The link to fill out the form is https://boiefiling.fincen.gov/boir/html.  There is also a FAQ on the FinCEN website https://www.fincen.gov/boi.

The Corporate Transparency Act and Your Business

Do you need help navigating the implications of the Corporate Transparency Act for your business? Co-founder of Gatlin Voelker, Jack Gatlin, has years of experience providing counsel to business owners. If you are interested in discussing your matter with Jack, call (859) 781-9100.

Should I Require My Employees to Be Vaccinated?

With the emergency release of the coronavirus vaccine, this is the question weighing on the minds of business leaders everywhere, from small business owners to corporate CEOs. There is not a one-size-fits-all answer for everyone. When preparing to make the decision, there are several factors that should be considered:

• Your industry.
• Proximity of your employees to each other, customers, or the public.
• Your employees’ general feelings about the vaccine.
• Whether the risks and benefits of requiring the vaccine outweigh the risks and benefits of not requiring it.

Industry & Close Contact

Healthcare workers who provide direct care are the most obvious choice for vaccine mandates. Other businesses in industries where employees have consistent close contact with each other or the public—such as food, transportation, or schools where virtual learning is more difficult—can make a strong argument for mandating the vaccine.

For businesses in other industries, particularly offices where remote work is possible or social distancing is a lot easier, it will be more difficult to make an argument for a mandated vaccine. In this case, recommending or making the vaccine optional would be easier to justify.

Employees’ Opinions

While this should not be the ultimate determining factor, it is important to keep this in mind. If you have strong reason to believe the majority of your employees will object to the vaccine, you may need to be a lot more cautious about how you unroll your plan to require or recommend it.

On the other hand, if your employees are already open to the vaccine or have been asking for it, you will have an easier time encouraging cooperation.

Benefits & Risks

In this decision, the primary factor that weighs in the balance is health: the health of your employees, the health of your customers or clients, and the health of the community where you do business. If your employees are at a high risk of contracting and spreading the coronavirus, that should be weighed heavily in your decision. If not, other factors may be more important to consider.

In any case, legal considerations will also have to be weighed as you determine the best course of action.

Feeling uncertain? Get in touch with one of our experienced business attorneys today.

What Legal Considerations Are Relevant in This Decision?

Requiring the vaccine or not requiring the vaccine both have legal implications for businesses. Here are some issues to keep in mind.

• OSHA Standards. Businesses must always adhere to OSHA standards for providing a clean and safe workplace. Whether you require or recommend the vaccine, or simply present it as an option, you will still need to ensure you are following all of OSHA’s guidelines.
• Workers’ Compensation. Vaccines typically result in side effects, often mild but occasionally severe. Be aware that a serious reaction attributed to the vaccine and requiring medical attention could result in a workers’ compensation claim for which you will most likely be liable. One way to mitigate this risk is to provide time off for the employees to recover from the vaccine’s side effects.
• Insurance Coverage. Before making your decision, find out whether your health insurance provider will cover the vaccine. If coverage is not available, consider paying for the vaccinations as a preventative move against any vaccine-related lawsuits or claims that may arise.
• Wrongful Termination. Be mindful of how you plan to proceed if you require or recommend the vaccine and an employee refuses to receive it. While health and safety needs to be your first concern, it’s important to exhaust all of your legal options before taking a more drastic step in order to avoid grounds for wrongful termination.
• Discrimination or Harassment. It’s important that employees do not feel coerced to take the vaccine if they have reasonable grounds for refusal, such as a disability, pregnancy, or sincerely held religious belief. Always try to use factual language and a neutral tone and be willing and ready to make reasonable accommodations to avoid being charged with discrimination or harassment.
• EUA (Emergency Use Authorization) Status. Due to the vaccine’s EUA status, when someone receives the vaccine, they will be presented with very clear language from Pfizer or Moderna (vaccine developers) as well as the FDA and CDC emphasizing the voluntary nature of the injection. Therefore it’s important to ensure that any language you dispense among employees regarding the vaccine does not come off as coercive in one direction or another.
• NLRA-Protected Protests. The NLRA protects employees’ right to protest various situations in the workplace. Union or non-union employees could come together and protest the vaccine mandate (or to demand a mandate), so you must be prepared to handle these situations cautiously to avoid them escalating into a larger issue.

Talk to one of our business attorneys for advice on how to plan for and mitigate risk.

What Can I Do If I Require the Vaccine but an Employee Refuses?

Reasonable Accommodations

If the employee refuses to be vaccinated due to a disability or sincerely held religious belief, they cannot be forced to receive the vaccine. However, if they truly pose an imminent threat to the health of those around them in their current position, you may need to make an accommodation. Can the employee work remotely? Can the employee step away from the job for a leave of absence? Can the employee be temporarily reassigned to a different position that would minimize direct contact with others?

Making these kinds of accommodations will help protect you from legal backlash while providing a safe and comfortable work environment for all of your employees, including the ones not receiving the vaccine.

Termination

If you find that no reasonable accommodations can be made and the employee is directly at risk and putting others at risk for contracting the virus, you may feel that termination is your only option. Talk to an attorney before making the final decision to ensure you fully understand state and local laws on this matter. Depending on how things are handled, you could quickly be facing a wrongful termination claim. Getting legal advice beforehand can help you avoid a lawsuit.

The Best Course of Action: Clear Communication

Deciding whether or not to require the COVID-19 vaccine is a complex decision, and employees’ mixed feelings and potential fear or uncertainty about the vaccine can add to the confusion. When navigating such a situation, the best thing to do is to communicate clearly and frequently with your employees.

• Provide facts and education about the vaccine in neutral language.
• Explain why you are requiring or recommending the vaccine, or leaving it optional.
• Avoid coercive language.
• Make time to discuss employees’ concerns one-on-one.

In all of your communications with your employees about the vaccine, it’s helpful to emphasize the primary goal of providing a safe, healthy work environment for everyone.

Need some advice? This decision is a tough one, but it’s one you don’t have to make alone. Our business attorneys are here for you, 24/7. Call us at (859) 781-9100 to set up an appointment. We will help you weigh all your options and make the decision that is best for you and your business.

Nearly every business owner has had their doubts about being in business with a partner, or multiple partners. This is a common concern for virtually every business owner, at some point in time.  Sometimes, the business partner asking this question may be overvaluing his or her own self-worth, but more often, one partner is either not working as hard, marketing as hard, or adding as much value as the other partners. At Gatlin Voelker, we help business owners make informed decisions about whether to act removing a business partner and guide them through the legal process if necessary. The most common question asked is whether you even can remove an owner from the business. Yes– It is possible to remove a business partner/shareholder/member.  The process to remove a partner/shareholder/member is most likely going to be determined by the corporate documents and by state statute. In all cases, it is always best to work out an agreement with the exiting business associate and to involve an attorney in drafting the needed documents.  Each entity, whether it is a Corporation, LLC or Partnership will have different sets of rules and guidelines. 

Removing a Member from a Limited Liability Company

A well-drafted Operating Agreement and Articles of Organization will include provisions for removing a member.  Removal may be as simple as the member submitting a letter of resignation, depending on the relevant provisions. However, if the member is not willing to voluntarily resign, the provisions might provide, for example, a voting procedure allowing the other members to vote for the removal of the recalcitrant member. Whether the member agrees to resign, or a vote is passed to force the member to withdraw, the member is still entitled to compensation for his or her interest in the LLC. Your operating agreement may contain buyout provisions that will assist you in this process, or there may be a separate buyout agreement governing such situations. If there are no provisions in either your Operating Agreement or Articles of Organization, both Ohio and Kentucky have statutory processes for removal.  While neither Kentucky nor Ohio follows directly the Uniform Limited Liability Act or ULLCA, both States have similar provisions. If there are no default voting procedures to fall back on and an LLC member who remains unwilling to withdraw from the company, often the only solution, short of the members being able to sit down and negotiate a settlement of the issue, is to petition the court for judicial dissolution of the LLC. Generally speaking, if matters reach this particular stage it’s often best to retain an attorney to help you with the process. If the petition is granted, the LLC will undergo winding up procedures to terminate the business. It is always best to try and reach a resolution first.

Removing a Shareholder from a Corporation

As with an LLC, shareholders should first look to the Shareholders Agreement for directions on the buyout procedure of the removed shareholder’s ownership interest.   In many cases, the Agreement allows the shareholder’s ownership interest to be sold at fair market value and adjust the remaining shareholder capital accounts accordingly. The valuation method used to determine the fair market value of the shareholder’s ownership interest should be specified in the buy/sell provisions of the Shareholders Agreement. Next, the shareholders will need to draft a resolution for a vote of approval before the board of directors or designated shareholders, whichever the shareholder’s agreement determines.  The corporate records need to reflect this removal and the corporation needs to adjust the shareholder capital accounts.   If there is no provision in the Shareholder Agreement, then like an LLC, the shareholders will have to seek judicial action. In most states, including Kentucky and Ohio, minority shareholder interests are generally protected.  Under most close corporate and partnership laws, the majority owners owe a fiduciary duty to the minority owners and as such must deal with minority owners with candor, honesty, good faith, loyalty, and fairness.  We have successfully represented both majority and minority interests in ownership disputes. Most of the litigation involves reasonableness in salaries, reasonableness in distributions and reasonableness in decisions.  As an example, it would probably be unreasonable for a 51 percent owner to pay themselves a salary that is significantly above market rate and payout of the business a significant amount of personal expenses and then claims there is no money left to distribute to the minority interest. If your partner/shareholder won’t sell their interest, there are often remedies built into the corporate/partnership agreements.  If not, there are always provisions in both Kentucky and Ohio law that deal with “forcing” the sale of a reluctant owner. However, in virtually all cases, where there is not an agreement, the owner seeking the sale, will have to involve the court system and create some justifiable reason to have a court intervene.  Examples could include an intentionally obtuse partner, financial challenges, or other circumstances that would make it nearly impossible to continue the business with its current ownership structure.

If you are considering removing your fellow business owner

Make sure you first ask the following questions:

• How does this impact business bank accounts?
• Who do I have to notify about the change of a partner/owner?
• How does this affect taxes for the year this happens?
• Security measures (changing passwords, removing access from certain accounts, etc.)

The legal part of the solution may not be the biggest challenge.  Realize there are practical issues that arise as well. In many cases, if the business has debt, both owners may hold personal guaranties and the creditors may be reluctant to release one of the owners.   There are also possible tax consequences. It is always best to be preemptive in working out these issues and detail exit strategies in the initial partnership/corporate agreements.  In many cases, a well-drafted Operating Agreement or Shareholder Agreement acts as a prenuptial agreement for business and works to avoid significant legal costs and time drain in the future.