A merger or an acquisition of a massive undertaking. Typically, those trying to arrange a major business transaction spend months negotiating terms and researching business prospects. Often, last-minute challenges are the result of regulatory enforcement. For example, concerns about antitrust laws occasionally result in federal authorities actively preventing a merger from taking place. Other times, the discovery of undisclosed information about either business or changes in the marketplace could derail a planned merger or acquisition.
Large businesses have long benefited from an opaque ownership structure. Those with an interest in multiple businesses did not automatically need to disclose that to other people or the government. Now that those rules have changed, some business transactions may grind to a halt because of the risk of regulatory complications.
Companies must now file reports with the federal government
As of January 1st, 2024, all newly-established businesses have the obligation to file a report with the federal government confirming the identities of those with a beneficial ownership interest in the business. The idea behind this change in policy is to enhance organizational transparency and counter money laundering, terrorism and organized crime.
Existing companies have until the beginning of 2025 to file a report identifying those with a beneficial ownership interest (BOI), as well as those who played a role in the initial formation of the company. Generally, anyone with a 25% or larger ownership interest must disclose their identity to the Financial Crimes Enforcement Network (FinCEN).
In some cases, those who have already played a role in the formation or funding of another company may become anxious about the mandatory reporting requirements. People may worry about having connections to too many businesses in one industry or to multiple companies that regularly do business with one another.
In some cases, the realization that someone may have to report their connections might sour them on the prospect of a merger or acquisition. A discussion regarding those with an ownership or formative interest in the company early in the merger or acquisition process could help avoid scenarios in which organizations invest in the preparation for a large transaction but cannot ultimately complete it.
Ultimately, tracking and carefully complying with new federal regulations can improve the chances of business executives and investors successfully completing a sizable transaction.