Investing in a business can be a way to develop industry connections and generate regular income. Those who are shareholders in successful businesses can receive dividends from the company’s profits. Investors can also sell their interest in the company when the business expands. They can even potentially vote on issues that can alter how the company operates.
Many minority shareholders and business investors diversify their holdings by purchasing an interest in a variety of different types of businesses at different stages of development. Those who have invested heavily in one organization or in a multitude of different companies may worry about federal scrutiny thanks to new business laws.
The Corporate Transparency Act (CTA) took effect on January 1st, 2024. Many businesses now theoretically need to disclose those with a beneficial ownership interest (BOI) in the organization. Do investors need to worry about those reporting requirements?
Companies, not investors, must submit a report
Unless an investor is also an executive at the company, they have minimal reason to worry about federal statutory compliance. The organization is responsible for putting together the BOI report mandated under the CTA.
Companies have to disclose the names of those with sizable ownership interests and those who helped form the company. If an investor holds less than a 25% interest in an organization, they may not be part of the reporting process at all. Those that are may simply need to provide certain identifying details to the business if necessary.
Those with large stakes in multiple companies may end up included in the BOI reports filed by multiple different organizations. However, the CTA is currently in legal limbo. A federal judge ruled in one specific case that the CTA is unconstitutional. An appeal is underway, but the law may ultimately prove to be unenforceable.
Businesses that have not already put together BOI reports may choose not to do so until after the resolution of the related pending court cases. Depending on the outcome of those cases, organizations and investors may not have much reason for concern at all.
This is just one example of how tracking changes to federal business statutes can be crucial for those who have invested in organizations. Those familiar with key regulations can help to ensure that they remain fully compliant with all relevant laws.