M&A and Corporate Transparency Act Compliance: Due Diligence, Deal Structures, Documentation, Reporting Requirements

Description

On Jan. 1, 2024, millions of U.S. businesses became subject to the CTA, which requires certain domestic and foreign companies to report specified beneficial ownership information (BOI) within prescribed deadlines to the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN). There are 23 exemptions to the CTA's reporting requirements. Determining eligibility for an exemption requires a careful review of each entity within the corporate structure and exemptions applicable to one entity may not extend to others.

When initiating an M&A transaction, counsel for both buyers and target entities must perform targeted due diligence to determine whether the CTA applies, identify if any exemptions exist, and ensure CTA compliance throughout the transaction. To avoid potential liability for a target entity's prior failure to comply with the CTA, buyers should ensure that the target entity that is a reporting company has maintained CTA compliance by requesting the target's CTA filings and any related communications with FinCEN and require that the target provide information on corporate structure, ownership, and governance.

In addition to the CTA's reporting requirements and related due diligence, M&A parties will want to consider the CTA's requirements when structuring any newly formed entities. Also, CTA-related provisions may be appropriate for the acquisition and transaction documents, such as rollover agreements, senior officer employment agreements, and LLC/limited partnership/corporation securityholder agreements; particularly with regard to representation and warranties, covenants, and possibly indemnification and closing conditions.

Listen as our authoritative panel reviews the CTA-related issues that arise in M&A deals and provides guidance and tips for ensuring compliance in the context of these transactions.