CURRENT MONTH (April 2025)
Prudence Is the New Corporate Transparency Act Watchword
By William E. H. Quick, Polsinelli PC
As noted in our prior installment on the Corporate Transparency Act (“CTA”) saga, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has adopted an Interim Final Rule (“IFR”), which narrowed the beneficial ownership information (“BOI”) reporting requirements under the CTA to require only “foreign reporting companies” to report BOI, and even then only BOI for non-U.S.-person beneficial owners. This IFR is subject to a comment period through May 27, 2025, after which a final rule is anticipated to be issued by Treasury before year end.
The CTA itself exempts from the definition of “reporting company” twenty-three specific types of entities. Many of these exempt entities are already subject to substantial federal and/or state regulation or are already required to provide their beneficial ownership information to a governmental authority. The CTA also authorizes the Treasury Secretary “to exempt, by regulation, additional types of entities for which collecting BOI would neither serve the public interest nor be highly useful in national security, intelligence, and law enforcement agency efforts.” See 87 Fed. Reg. 59,498 at 59,539 (Sept. 30, 2022). Prior to the IFR, Treasury had determined not to exempt any entities beyond the original twenty-three named in the CTA. With the IFR, upon reliance on the above authority, Treasury issued a blanket removal of all “domestic reporting companies” and all U.S. persons from the scope of the CTA and its BOI reporting. Virtually all of these newly exempted entities were not subject to existing meaningful federal and/or state regulation, nor were they otherwise providing BOI to a governmental authority. Further, the IFR does not, on its face, appear to “serve the public interest,” and the IFR does not single out only information reporting that is not “highly useful in national security, intelligence, and law enforcement agency efforts.”
Also noted in our prior installment, referencing a letter[1] to U.S. Treasury from Senators Sheldon Whitehouse (D-RI) and Chuck Grassley (R-IA), the IFR is premised by Treasury on its authority to exempt, by regulation, additional types of entities as noted above. However, that grant of authority requires Treasury to follow a prescribed process and to take steps to ensure that any CTA exemption change, in the practice or rulemaking governing BOI reporting, fulfills the law enforcement and national security purposes of the CTA—which actions appear, to date, to not have been undertaken. This lack of legal foundation brings into question the actions taken by Treasury and leaves open the possibility that future government action or future adjudication may strip the IFR of validity, and revert the CTA and its enforcement to its pre-IFR status quo.
Finally, several important questions remain unanswered by the IFR. What happens to information already reported into FinCEN’s beneficial ownership secure system (“BOSS”) that is no longer required to be so reported? Must such information, once reported into the BOSS, be kept current, as required under the CTA? And did knowing inaccurate disclosures to the BOSS, for BOI reporting no longer required after the IFR, constitute punishable offenses under the CTA that may still be enforced? Each of these, and many other questions, remain unanswered. While Treasury’s legal authority and process for implementing the IFR remain in question, prudence dictates that the reader stay alert and remain vigilant as the CTA and its enforcement continue to evolve.
Delaware Court of Chancery Rejects Stockholder’s Attempt to Use Appraisal Right as Substitute for Books and Records Demand
Asaf Barkan v. Exabeam, Inc., C.A. No. 2024-0855-MTZ
By Yu-Tyan Lin, Tsar & Tsai Law Firm
In Asaf Barkan v. Exabeam, Inc., C.A. No. 2024-0855-MTZ (Apr. 11, 2025), the Delaware Court of Chancery dismissed a petition filed by a former stockholder of Exabeam, Inc., who sought to use Section 262 of the Delaware General Corporation Law (“DGCL”) to compel the production of corporate documents in lieu of making a proper demand under Section 220. The court also denied the petitioner’s attempt to intervene in a parallel class action, stating that his failure to comply with statutory procedures was fatal to both requests.
Exabeam, Inc., a Delaware corporation specializing in AI-driven cybersecurity, was acquired in a private stock-for-stock merger by an affiliate of LogRhythm Parent, a Thoma Bravo portfolio company. The merger cancelled all Exabeam common shares without consideration, while preferred stockholders allegedly affiliated with Thoma Bravo continued participation in the post-merger entity. After Exabeam notified stockholders of their appraisal rights, Barkan, a common stockholder, submitted an email titled “Written Demand for an Appraisal of Shares” and subsequently filed a Section 262 petition, attempting to use it as a substitute to obtain books and records for a presuit investigation into potential fiduciary breaches. When other stockholders filed a class action challenging the merger, Barkan moved to intervene and stay that action, which the court considered alongside Exabeam’s motion to dismiss.
In the ruling, the Court emphasized that although Section 220 of the DGCL grants stockholders limited rights to inspect corporate books and records upon a sworn written demand stating a proper purpose, this right is not absolute and depends on satisfying mandatory procedural requirements. Barkan’s failure to submit a sworn, written inspection demand before the merger was statutorily fatal to his standing under Section 220. Despite his argument that the hasty merger and the interruption of the statutory waiting period should create an exception, the Court determined that Section 220 does not allow for any exceptions to the “form and manner” requirements.
The Court further clarified that Section 262, which addresses shareholder appraisal rights, is “not a failsafe for Section 220’s form and manner requirements.” Section 262 provides a limited remedy designed solely for awarding the fair value of shares in “strictly limited” circumstances: “It limits appraisal to statutorily specified transactions such as ‘a merger, consolidation, conversion, transfer, domestication or continuance to be effected pursuant to’ enumerated sections of the DGCL.” Section 262 withholds that right under a number of exceptions, including in cases involving “a sale or other transfer of assets, charter amendment, dissolution, or other corporate events” and in de facto mergers not consummated under one of the enumerated DGCL sections. It is not intended to facilitate presuit discovery of corporate records.
Barkan leaned heavily on Wei v. Zoox, Inc., 268 A.3d 1207 (Del. Ch. 2022), for his arguments, but the Court found his reliance misplaced. The Court distinguished Zoox, noting that the petitioners in that case had submitted timely and proper Section 220 demands before the merger, whereas Barkan did not. The Court also confirmed that Zoox does not support Section 262 bypassing Section 220’s procedural requirements. Although Zoox discussed the historical use of appraisal as a discovery tool—particularly following the 1988 Cede & Co. v. Technicolor, Inc. decision—recent case law and legislative changes have limited that function. Zoox recognized the court’s discretion to limit discovery in appraisal actions but did not permit using Section 262 as a substitute for Section 220.
Therefore, here in Barkan, where the petitioner sought to use an appraisal action as a substitute for Section 220, the Court emphasized that Section 262 does not serve as an alternative path for obtaining Section 220 materials. Because Barkan failed to properly invoke Section 220, he lacked the statutory standing necessary to proceed, and the Court granted Exabeam’s motion to dismiss. The Court further declined to grant Barkan’s request to intervene in a separate plenary stockholder class action challenging the merger, a request he made only to stay that proceeding pending his own investigation.
In that letter, the senators asked Treasury to respond to the following questions: “1. Has [Treasury] followed or initiated the process required by the CTA to exclude an entity or class of entities from its reporting requirements? 2. What steps has Treasury taken to ensure that any change in the practice or rulemaking governing BOI reporting fulfills the law enforcement and national security purposes of the CTA?” ↑
