On March 24, 2023, the Financial Crimes Enforcement Network (FinCEN) published its first set of guidance materials[1] to aid the public, and in particular the small businesses, in understanding the upcoming beneficial ownership information reporting requirements.
The new requirements, which were issued on September 30, 2022 and will take effect on January 1, 2024, mandate certain corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their ultimate beneficial owners to FinCEN.
The set of guidance contains three parts: (i) Answers to Frequently Asked Questions, (ii) One Pagers on Key Filing Dates and Key Questions, and (iii) Informational Videos on YouTube. The contents of the three parts are very similar, they all target to provide explanatory information regarding some basic aspects of the new reporting requirements, including without limitation the following:
what companies will be subject to the reporting requirements
who is deemed a beneficial owner of a company
what information of the company and its beneficial owners shall be reported
when do companies need to complete their reporting
what kinds of exemption from the reporting requirements are available
who will have access to the reported beneficial ownership information
what is the cost of submitting the report
The guidance, although not a comprehensive summary of the regulations, is helpful to small business owners in having a basic understanding of the reporting requirements and planning ahead accordingly. FinCEN further states that it will issue additional guidance, including a Small Entity Compliance Guide, at www.fincen.gov/boi in the coming months. Business owners are encouraged to check the website often in order to have a smooth transition when the requirements officially take effect.
Section 242 of the Delaware General Corporation Law (DGCL) outlines the shareholder’s power to vote on a corporation’s charter. While a majority vote of outstanding stock is typically required for charter amendments, Section 242(b)(2) mandates a separate class vote if the amendment would adversely affect the class, irrespective of the voting power of such class. This includes amendments that change the aggregate number of authorized shares, par value of shares, or alter the powers, preferences, or special rights of the shares. Similarly, if an amendment affects only one or more series of any class, the affected series will vote as a separate class. However, increasing or decreasing the authorized number of shares or par value is noticeably absent from the list requiring a series vote. Therefore, corporations can amend their charters to increase authorized shares of a class through a general majority vote, despite having different series. Previously, practitioners believed that Class A and Class B common stock were two different series of one class, i.e., common stock, and did not require separate class votes. In the Garfield case, however, the Court, based its decision on the plain language, determined that “Class A” and “Class B” are two classes of stock and that the company (Boxed, Inc.) breached Section 242 of the DGCL by not having separate class votes.
Following the Garfield decision, many companies rushed to the court and filed petitions under Section 205 of the DGCL, requesting the court to validate the potentially defective votes cast for any charter amendment. Two months later, the court issued a written opinion in the case of Lordstown, upholding the validation of many companies’ defective amendments to their charters. The court determined that these companies and their boards acted in good faith and consistently regarded the amended charters as valid and effective. A contrary ruling, in the court’s opinion would create chaos.
Companies with a multi-share class stock structure should promptly review their historical and current capital structure and consult with legal experts to evaluate whether any further action is necessary.