Corporate Transactions and Compliance Blog

Words Matter!

Posted by Colleen DeVries on Thu, Mar 23, 2017

Drafting Provisions for Independent Directors or Managers in Real Estate Finance Deals

Independent Director in Real Estate Deals.jpg

By Colleen A. De Vries, National Corporate Research, Ltd.

"Speak clearly, if you speak at all; carve every word before you let it fall." - Oliver Wendell Holmes

The quote above is powerful when considering the spoken word and, for attorneys who draft legal agreements, equally powerful when considering the written word.

When drafting legal agreements, there is a series of building blocks in each section with the necessary components to translate into legally effective provisions. If not done well, parties may lose the negotiated or intended advantage of an agreement term or provision by either failing to use the appropriate language or including language that is not necessary and imposes an unintended meaning. This is also true when it comes to defining the role of an independent director or manager.

In my experience working with attorneys over the years who work on large commercial financing transactions, there is great care taken when drafting agreements to reflect the negotiated terms of the deal and the remedies available if any party fails to perform. Remedial provisions typically include indemnification obligations, termination rights, limitations of liability and, depending on the nature of the financing transaction, other clauses that address possibility of future bankruptcy or litigation.

Forming a Bankruptcy Remote Entity

In my current role, I work with attorneys representing borrowers who are required to appoint an independent director or manager (both terms used interchangeably) on large commercial real estate financing transactions. Lenders in these types of transactions will require that a bankruptcy remote entity (“BRE”) be formed to limit certain risks associated with a borrower’s bankruptcy filings. “A BRE (also referred to as a single purpose entity “SPE”) is organized for the express purpose of holding a single real estate asset”. A properly structured BRE isolates a lender’s collateral from the insolvency and bankruptcy risks associated with other types of financing”[1].  

In addition to appointing an independent director or manager “who is not affiliated or associated with the borrower”1 above, lenders will also require that the Operating Agreement be drafted to include, among other things, provisions that limit the purpose of the BRE to owning a specific property, isolate assets and liabilities and limit debt/liens.

Delaware Limited Liabilities Companies Offer Flexibility

Typically, in addition to being appointed as the independent manager, we are asked to assist with the formation and be appointed as registered agent of a limited liability company (“LLC”) in Delaware. While there are other entity types and jurisdictions that are sometimes used in these types of deals, Delaware LLCs are favored for BREs because of the flexibility of the laws governing limited liability companies in Delaware.

Corporations are a less favorable entity type for these types of real estate financing deals. “Corporate laws generally require the officers and directors of a corporation to act as fiduciaries for the shareholders and to consider the best interests of the corporation above all else, particularly the corporations creditors.”[1] 

The lenders in these types of deals require that the independent manager appointed also consider the interests of the creditor. The legal premise known as freedom of contract gives the organizers of a Delaware LLC, who draft the Operating Agreement, flexibility in drafting its terms and, among other things expanding the responsibility of the independent manager to consider the interests of the creditor.

Defining Independent Manager’s Role

While the independent manager is one of many lender requirements as noted above, the drafting of the provisions in the Operating Agreement carving out and defining this role is extremely important so that the entity qualifies as a BRE and that no unintended responsibility is imposed on the independent manager. The provisions in the Operating Agreement will include language related to specific material actions, including actions related to bankruptcy, insolvency and dissolution that the independent manager will be required to vote on. This gives the lender comfort that their interests will be considered should a material action present itself. 

Independent Manager in Real Estate Transactions.jpgWhy Language in an Operating Agreement Matters

Prior to accepting independent manager appointments, we take great care to review these provisions in the draft Operating Agreement. We specifically look out for language that may impose an increased role or responsibility on the independent manager. One section of the Operating Agreement that we pay particular attention to are provisions that indicate that the independent manager should “[t]o the extent permitted by law. . .consider only the interests of the Company, including its respective creditors”.[1] 

In some cases, we see language that states that these determinations be made in accordance with the Delaware Corporation Law (DGCL). As noted above in the quote, words matter. In this scenario, the addition of the reference to the DGCL in a Delaware LLC Operating Agreement can have a significant effect on whether the LLC qualifies as a BRE.

This issue was highlighted in the In re General Growth Properties (GGP) case in which many BRE subsidiaries were included in Chapter 11 bankruptcy filings. While there were many points and arguments raised in this case, language in some of the Operative Agreements of the BREs included a reference to the DGCL.

In the GGP decision, the court stated that in instances in which the organizational documents of and SPE (also referred to as a BRE) provided that the fiduciary duties of the independent managers are analogous to the duties of directors under Delaware law, relevant case law requires those independent managers to act on behalf of the SPE’s shareholders at all points before actual insolvency, as opposed to acting in the interest of the creditors at the time the entity has reached the  ‘zone of insolvency’.[2] After this decision, among other things, many attorneys, both on the borrower and lender sides of real estate financing transactions, reviewed and revised the organization documents used by BREs to eliminate the reference to the DGCL.

Experience Matters!

The issues outlined above in the GGP case illustrate the importance of working with experienced individuals when engaging the services of independent managers or independent directors for large real estate financing transactions. Their knowledge can often help you avoid common pitfalls in these kinds of deals.


[1] Bankruptcy Remote Entities in Commercial Real Estate Transactions by Richard Facciolo and John H. Knight, Richards, Layton & Finger, PA, with Practical Law Real Estate

[2] In Re General Growth Properties, 409 B.R. 43 (Bankr. S.D.N.Y. 2009)


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: real estate finance, independent director, independent manager, independent manager/director service

The Do’s and Don’ts of Working with a Professional Registered Agent

Posted by Krystal Beckner on Thu, Mar 16, 2017

By Krystal Beckner, National Corporate Research, Ltd.

Registered Agent Dos and Donts.jpgA registered agent is a business or individual designated to receive and forward legal documents such as Service of Process or notices from the state. The purpose of the registered agent is to provide a legal address where someone will be available during normal business hours to receive these notices and documents. Unlike some other responsibilities, in most jurisdictions in the United States, this is not a “nice to have”, but is a mandate by the state in which the entity is doing business. Failure to maintain a registered agent can have a negative impact on the business, including penalties or even revocation of the company’s authority to do business in the state in some cases.

While some businesses opt to have an officer or employee serve as the registered agent, many choose to designate a company that specializes in providing registered agent services. This choice may be especially beneficial when the company is doing business in several states and is not able to ensure that staff in a particular location will always be available during normal business hours to receive these documents.

But what are the responsibilities of a professional registered agent? What will they do for your business and, equally important, what should they not do?  Here are a few of the do’s and don’ts to keep in mind when working with a registered agent:

Registered Agent Services.jpgWhat You Should Do When Working With a Professional Registered Agent:

  • DO notify the registered agent if you are filing the formation or qualification documents yourself. In a number of states, a registered agent can be selected without any approval by or notification to the agent. Make sure you take the step to notify the agent so any legal documents received on your behalf are sent expeditiously to the correct contact for your business. Missing an important response date because you didn’t receive the service of process could subject your company to a default judgment.
  • DO provide current contact information so your registered agent can send legal documents in a timely manner. Most agents will email and/or send legal documents via an overnight service. Often, the registered agent is overlooked when there is a change of address or contact information. Make sure your registered agent receives any changes in contact name or physical and email addresses so costly delays are avoided.
  • DO provide jurisdiction-specific information (e.g., Delaware Communications Contact). Some states require the name of a “natural person” to be designated to receive notices. It is important that you provide your agent with the name of an individual rather than “accounting” or “legal department”. The registered agent has a responsibility to maintain this information, and in some situations may need to resign if it is not provided.
  • DO pay the invoice. It is not uncommon for an invoice to be overlooked or put aside if the individual receiving it is not certain of what it is for. This may result in the registered agent “resigning” with the state, which could result in penalties or legal documents not being forwarded.
  • DO reach out if you receive state filing solicitations that appear to be questionable. While some annual report notices are entirely legitimate, you should be on the lookout for misleading compliance solicitations. If you receive any notices that do not look to be from the state or request you send a fee much higher than you are accustomed to, do not hesitate to contact your registered agent who can investigate the legitimacy.

Registered Agent Donts.jpgWhat You Should NOT Do When Working With a Professional Registered Agent:

  • DON’T assume your registered agent will automatically file annual reports and other tax documents on your behalf. While the agent will forward any notices received from the state, it is your responsibility to file the report. Some states do not forward reminder notices and others may forward notices only very shortly before the due date. If you need help managing the due dates, consider asking your agent if they have a tool for tracking report due dates. If you prefer to outsource the responsibility for annual report filings, many agents will be able to automatically file reports on your behalf for an additional fee.
  • DON’T use your registered agent’s address as a business or personal address without consent. Some entities do not realize that a registered agent’s address is only for legal documents and notices. Are you expecting license tags or having a package sent to the business address? Make sure the agency or vendor has your physical address for shipping purposes.
  • DON’T forget that your registered agent may be able to provide more than just an address for service of process (e.g., assist in managing your entities’ registrations, annual reports, charitable registrations, business licenses, etc.). If you have any questions about what your agent can or cannot do for you, just ask.

Following these simple tips will help ensure you receive timely notification of any legal documents or notices that need to be addressed allowing you to focus on the important job of managing your business!


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: registered agent services

5 Quick Tips about Annual Reports in Puerto Rico

Posted by Teri Mayor on Mon, Mar 13, 2017

By Teri Mayor, National Corporate Research, Ltd.

  1. FILE ON TIME!annual report filing
    Annual Reports in Puerto Rico are due on April 17th this year. Corporations that were formed the previous year must file an annual report or an extension by that date, or face sizeable penalties. Even if the entity was formed as late as December 31st, 2016 it will owe an annual report for 2016 on April 17th of 2017. LLCs are required to submit minimal information and the annual fee by this date.

    The fee for filing an annual report is $150.  A corporation that misses the April 17th deadline has to pay a $750 penalty. An LLC that misses the deadline must pay a $500 penalty, plus an additional 1.5% for each month that has passed since the filing deadline.

    If needed, a corporation can file an extension, rather than an annual report, by paying the annual report fee in full, but not submitting the completed report.  This will extend the filing deadline till June 16th (July 16th if an additional extension is filed). 

    If your corporation has been delinquent in past years, please note that this is the year to submit those past due filings!  Corporations that have not filed annual reports for two subsequent years are receiving letters from the Puerto Rico Department of State that their entities will be revoked if they do not become compliant within 60 days of the letter. These letters are also posted on the entity’s record on the Puerto Rico website.  The Department of State has also posted another Spanish only letter to their webpage that indicates that late fees for these past due annual reports will be waived if the corporation becomes compliant by April 17, 2017.

    Puerto Rico does not send out any notification that the annual report is coming due. Corporations and limited liability companies need to track this requirement and ensure they file on time.

    In the last year, Puerto Rico has greatly expanded the ability to file a number of documents electronically and has an easy to use online system for filing annual reports. The system will reflect the filing immediately and using it will help you to avoid delays often experienced when submitting paper filings. Do not be disconcerted by the Spanish only home page! The pages for filing the annual reports can be viewed in English by clicking the American flag in the upper right-hand corner, giving you access to instructions and information in English. To file an annual report online, you must be authorized as either an employee/owner of the corporation or as a certified public accountant, attorney or paralegal.

    LLCs merely have to pay the $150 fee and present basic information about the company (name, register number and whether the LLC is foreign or domestic).  The annual reporting requirements for corporations are a bit more involved.  Corporations must provide the following information on an annual report:
    a. Name, register number and whether the corporation is foreign or domestic
    b. Whether the volume of business exceeds three million dollars
    c. Name, address, telephone number and e-mail address of the corporation’s designated office in Puerto Rico and its registered agent (These should be the same.)
    d. Name, mailing address and date of the expiration of the term of at least two officers of the corporation
    e. Financial Statement:  Every corporation must present a financial statement for the corporation. If the volume of business is under three million dollars, the statement must be prepared in accordance with GAAP. If the corporation’s volume of business is over three million dollars, then the statement must be audited by a certified public accountant licensed to practice in Puerto Rico.

    Puerto Rico will accept the current year’s annual report, even if previous annual reports are past due. To ensure that you are in compliance and that Puerto Rico’s online system reflects that all annual reports or annual fees due have been filed for your entity, run a search on the company name. The tab “annual filings” will display the annual reports filed or fees paid for the company. (Note that for LLCs, the phrase “annual due” appears. This does not mean that the annual fee is due, but that the annual dues have been paid.) If there are past due annual reports from previous years, these will need to be submitted using a paper filing.

Puerto Rico’s online system has greatly expanded and improved over the past year and, if you follow the tips above, it is likely you will have no difficulties filing your annual report in a timely way and avoiding a sizeable monetary penalty.


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Tags: Corporate Compliance, International, Compliance, International Transactions, Entity Formation and Filing Considerations, LLC Compliance, Annual Reports, Good Standing, Compliance due dates, Puerto Rico

FOIA at 50: Fifty Fun Facts about the Freedom of Information Act (PART 2)

Posted by Joanna McCall on Thu, Mar 09, 2017

By Joanna McCall and Courtney McRae, National Corporate Research, Ltd.

Freedom of Information Act seal.jpg

In Part I of our series commemorating the 50th anniversary of the Freedom of Information Act (FOIA), we covered the origins of the Act and its major amendments, processes, procedures, exemptions and exclusions. In Part II, we take a look at the various types of FOIA requesters, turnaround times, and more.

Who Receives the Most FOIA Requests?

  1. The number of FOIA requests submitted to federal agencies has steadily increased over the years. In March 2016, the Department of Justice’s Office of Information Policy announced that government agencies processed nearly 770,000 FOIA requests in 2015.
  2. The top agencies to receive FOIA requests in 2015 were the Departments of Homeland Security, Justice, Defense, Health and Human Services and Veterans Affairs.[1]

Three General Categories of FOIA Requesters       

  1. Commercial-use requesters: individuals or companies requesting records in order to further their own, or another party’s commercial, trade or profit interests.
  2. Noncommercial requesters: including educational institutions, noncommercial scientific institutions and members of the news media.
  3. All others: a catchall category for individuals and companies who don’t fit into the first two categories.
  4. Agencies vary their fees depending on the category of requester. Noncommercial requesters may even request a fee waiver. [2]

Turnaround Times for FOIA Requests

  1. Federal agencies have 20 working days to respond to the request. However, this usually means they acknowledge the request within 20 working days. It almost always takes them longer to actually issue a final response.
  2. An agency may cite “exceptional circumstances”, such as the scope of the request or the agency’s FOIA backlog, in communicating an extension to their response time.
  3. Per the government’s 2015 analysis of FOIA response times, it takes from one to two-and-a-half years to answer requests.
  4. If an agency feels a request is overly broad or cumbersome, they may ask the requester to narrow the request. [3]
  5. Agencies frequently cite FOIA exemptions and withhold information in their final responses and information may be deleted or blacked out.
  6. The most frequently cited FOIA exemptions are Exemption 6 and Exemption 7(c), which protect personal privacy.

FOIA Information: Public vs. Private

  1. Information issued in response to a FOIA request is usually, but not always, considered public information. An agency may release records that contain sensitive information only to the requester.
  2. The FOIA requester’s name and the nature of their request are considered to be public information and will be listed in the agency’s FOIA log.

The Appeal Process

  1. If a requester is unhappy with the agency’s final response or with the amount of time the request is taking, they may appeal to the “FOIA Ombudsman”, the Office of Government Information Services (OGIS). The OGIS assists in resolving disputes between requesters and agencies.
  2. If a requester is unhappy with the agency’s final response, they also have the option of appealing. The appeal must be filed within 90 days of receiving the final response.
  3. An appeal can be mailed or, in most cases, emailed. There is no fee to submit an appeal.
  4. FOIA requesters have the option of suing the agency should both their request and their appeal fail. The U.S. Supreme Court has decided several notable cases regarding FOIA requests.
  5. The number of FOIA lawsuits has steadily risen over the years, from 299 suits filed in fiscal year 2001 to 498 suits filed in fiscal year 2015. [4]

You Can FOIA Yourself!

  1. Under the Privacy Act of 1974, 5 U.S.C. § 552a, individuals can request access to their own records as maintained by the Federal government.
  2. The Privacy Act also requires that the government obtain the written consent of an individual before disclosing records about the individual. However, there are exceptions to this requirement.

Famous FOIA Requests

  1. Agencies have responded to some unusual FOIA requests over the years, including a request for complaints at the CIA’s cafeteria and the FBI’s dictionary of Twitter slang.

FOIA Laws in U.S. States and Around the World

  1. All fifty U.S. states have versions of the Freedom of Information Act which allow citizens to request state government records.
  2. Some states, such as Arkansas and Virginia, only respond to requests from state residents. Arkansas agencies even take the step of requesting identification from would-be records requesters.
  3. At least 95 countries worldwide have some variation of a ‘right to information’ law.  Sweden is said to have enacted the first such law in 1766, followed by Finland in 1951 and then the United States.[5]

As you can see, a FOIA request can quickly become complicated. Diligent and time-consuming follow-up is often required to ensure you get results quickly. Before you file, you may want to consider using an experienced service company to file on your behalf to ensure you receive the documents you need.








This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Freedom of Information Act, FOIA

Annual Reports in Puerto Rico are Due April 17th

Posted by Melissa Tomelden on Tue, Mar 07, 2017

By Melissa Tomelden, National Corporate Research, Ltd.


Corporations (profit and nonprofit) and limited liability companies (LLCs) organized or registered as a foreign entities with the Department of State in Puerto Rico are obligated to file an annual report on or before April 17th. This applies to all corporations and LLCs formed or qualified on or before December 31st of the previous year --- even if the entity was only in existence for one day. All filings are done electronically. The filing fee for corporations and LLCs is $150 and the fee for nonprofit corporations is $5.

General information required when filing your annual report in Puerto Rico includes:

  • The corporation's name and the name of the resident agent as registered with the Department of State;

  • A list containing the names and addresses of all directors and officers of the corporation at the date the report is filed, the expiration dates of their respective terms and their email addresses;

  • For entities whose volume of business does NOT exceed $3 million, the report must include a balance sheet reflecting the assets and liabilities of the company. Entities whose business volume exceeds $3 million must include a balance sheet audited and certified by an independent certified public accountant licensed in Puerto Rico. The auditor's opinion must include the stamp from the Puerto Rico Certified Public Accountants' Association and the accountant’s seal;

  • LLCs are only required to file an Annual Fee Statement with basic information; no balance sheet is required.

  • The Economic Data Survey is required for all filings. This is a two-part questionnaire which includes general information such as current sales amount generated in Puerto Rico, the company’s EIN number and whether the company has any contract with a governmental entity.

Late Filing Fees:

The Puerto Rico Department of State assesses a hefty penalty fee if the deadline is missed. The late penalty fees imposed are as follows:

  • $750 for corporations

  • $500 plus 1.5% interest per month for LLCs

  • $75 for nonprofits

To avoid these expensive penalty fees imposed by the Puerto Rico Department of State, file on time. Corporations have the option to file an extension with the Department of State. However, they must pay the $150 annual filing fee to obtain the extension. The extension is only available for corporations --- NOT LLCs. It grants a corporation 60 days to file its annual report, which extends the filing deadline to June 14, 2017. This extension must be filed on or before April 15th. If a corporation requires an additional extension, until July 15, 2017, a filing fee of $30 must be paid between April 16 and June 14, 2017. No additional extensions are available and the annual report must be filed on or before July 15th to avoid the penalty fee.

Cancellations and Reinstatements

As a precaution, the Puerto Rico Department of State has initiated cancellations of entities for failing to file two consecutive annual reports. Should an entity be administratively cancelled, it can file a reinstatement. The entity will need to submit a Certificate of Renewal and pay a filing fee, plus the penalty fees associated with the missing years. Entities that were cancelled five more years must pay twice the annual report filing fee for each missing year, but no penalty fee will be imposed. For domestic entities, an additional fee to restore will be imposed. The additional fees are $20 for profit corporations, $4 for nonprofits and $80 for LLCs, plus the fees associated with the missing years.

Keep Track of Due Date: No Reminders Sent

When filing your annual report in Puerto Rico, it is important to remember to calendar the due date, as no notice is sent. You will also need to gather the necessary information, including financial statements, in advance, and to make sure the extension requests and annual reports are submitted in a timely way to avoid the large penalties. A knowledgeable service company that offers compliance services can assist with the process and help ensure the entity meets the deadline. 


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Tags: Annual Reports, Puerto Rico

Saving Nonprofits Time: IRS Lengthens Automatic Extensions

Posted by Ron Barrett on Thu, Mar 02, 2017

The IRS recently made a change for the better by releasing a new Form 8868 (Application for Automatic Extension of Time to File an Exempt Organization Return). The new form will save nonprofits some time by eliminating the need to file two three-month extensions, and is now used to request one automatic six-month extension.IRSLengthensAutomaticExtensionsForNonprofits_84068509.jpg

Nonprofits that are not able to file their IRS Form 990 (Return of Organization Exempt From Income Tax) on time (4.5 months after the close of their fiscal year end or May 15th for calendar-year filers), now have an additional six months to file their 990 when they file the new Form 8868. The new form increases the automatic extension from three to six months, eliminating the need to apply for a second three-month extension, which would be granted at the IRS’s discretion. The revised form is applicable to nonprofits with tax years beginning after 12/31/2015. The form can be filed online or mailed to the IRS and is applicable to the 990, 990-EZ, 990-PF and 990-T, among other IRS returns.


Automatic Six-Month State Extensions Are Trending

This increase from a three-month to a six-month automatic extension mirrors changes by several states in the past few years. For example, last year, Maryland eliminated the need to file extensions. Charities registered to solicit in the state can now file their Annual Update of Registration (charitable solicitation renewal) 10.5 months after their fiscal year end. This deadline now matches the maximum allowable IRS extension beyond the 4.5-month due date after a nonprofit’s fiscal year end. Maryland joined several other states that no longer require the filing of an extension: California, Connecticut, Hawaii, Kentucky, New York, Ohio and Pennsylvania. In the past, most of these states required multiple extension filings -- a process they eventually found to be too cumbersome. This provided the motivation to change their statutes or regulations to proactively and automatically grant six-month extensions.


Some State-Specific Extension Updates

National Corporate Research, Ltd. reached out to states that do not allow for an automatic six-month extension to see how the IRS automatic six-month extension would impact their procedures and due dates. Of particular interest was how the states will treat charities that are currently on a three-month extension. Below are some of the responses we received:

Colorado is aware of the IRS change and has no plans right now to change their current process for requesting the second 90-day extension (the first one is always automatically applied). If that changes, they will contact the filing community as a whole.

Mississippi: Three-month extensions that were previously requested will be changed to a six-month extension. This change reflects the new IRS policy of filing one automatic six-month extension. The three-month extension is no longer required.

New Mexico: Once the IRS six-month extension has been implemented, instead of requesting the 90-day extension first on the state’s website, organizations can request the 168-day extension and cite IRS dates as good cause to approve the New Mexico extension.

Rhode Island will mirror the IRS extension and provide a six-month extension upon filing the IRS Form 8868 with the Department of Business Regulation.

South Carolina: The filing date for renewal will not change. The state is following the IRS in giving the six-month extension on 990/financial reports. If there are charities that requested a three-month extension already, they will need to file a second extension for another three months. There is no way to track those and go back to make them six-month extensions. Going forward, when an extension is requested, it will be for six months.

Tennessee: There is no plan to change the current extension policy. The Secretary of State’s office indicated that they may extend the time for filing a renewal application for a period not to exceed ninety (90) days, during which time the previous registration remains in effect. If an organization has been permitted additional time to file an exempt organization return with the IRS, upon submission of proof of such extension, the Secretary of State’s office may extend the time for filing a renewal application for an additional period not to exceed sixty (60) days, during which time the previous registration remains in effect.


“Thank You” IRS Tax Exempt Division

Given the complexity of the 990 filing for many nonprofits, the additional requirement of reviewed or audited financial statements and required Board reviews and approval to file the 990, this is a sensible change by the IRS. This change largely reflects an agreement among some states and the IRS that more time is warranted to prepare, review and file these forms. Eventually most states, if not all, will mirror the IRS automatic, six-month extension, with or without the filing of an 8868. When that happens, we can thank the IRS for taking the lead in saving nonprofits some time. Sooner or later, perhaps the IRS will even automatically and proactively grant the six-month extension without the need to file anything, thereby saving nonprofits even more time.


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Tags: Nonprofit

FOIA at 50: Fifty Fun Facts About the Freedom of Information Act (PART 1)

Posted by Andrew Hackett on Thu, Feb 23, 2017

Freedom of Information Act 50th Anniversary.jpgby Andrew Hackett, National Corporate Research, Ltd.

The U.S. Freedom of Information Act (the FOIA), a Federal law encouraging openness and transparency in government, was first signed into law on July 4, 1966, and took effect a year later on July 4, 1967.  Many observances of the 50th anniversary of the signing of the law occurred last summer, but the 50th anniversary of the law going into effect hasn’t actually occurred yet. The FOIA serves an important role in the way citizens understand the working of our government, and the law has had a fascinating and sometimes controversial history.  FOIA has changed significantly over the years, just as it has changed the way Americans see their government. During this interval between FOIA anniversaries, let’s take a look at the law and its impact on American history in fifty facts about the FOIA.

Origin: The Desire to Address Secrecy Surrounding Government Activity

  1. The movement for more openness in government had been pressing for over a decade before a bill finally passed in Congress. Newspapers and lawyers had long felt that too much secrecy surrounded government activity, causing confusion and possibly even shielding corruption.  S. Representative John Moss (D-CA), is credited with pushing the bill forward in Congress, despite resistance from every government agency and department that testified in hearings on the bill. 
  2. President Lyndon Johnson, who signed the Bill into law, was not a supporter of the law and refused to hold a formal signing ceremony. His official statement, however, said “This legislation springs from one of our most essential principles: a democracy works best when the people have all the information that the security of the nation permits.
  3. The original FOIA law, Public Law 89-487, was actually repealed and replaced by Public Law 90-23 on June 5, 1967, which codified it into Section 552 of Title 5 of the U.S. Code, and kept the same effective date.

Major Amendments to the FOIA[1] [2]

  1. The FOIA wasn’t initially considered a success, and many agencies resisted releasing responsive documents. The first amendment to the law occurred in 1974 after Watergate. President Ford vetoed the amendments, thinking they were unconstitutional, but Congress overrode his veto.
  2. Amendments in 1976 and 1986 dealt with exemptions and the fees charges for different types of requestors.
  3. The Electronic Freedom of Information Act Amendments of 1996 allowed for electronic formats and digital delivery of documents in the Internet Age.
  4. After the 9/11 attacks, the Intelligence Authorization Act of 2002 passed, limiting access of government documents from foreign governments.
  5. The OPEN Government Act of 2007 passed both houses of Congress unanimously and became law. It was intended to address what many saw as recurring failings of the law, such as agency delays and lack of responsiveness.
  6. On June 30, 2016, the FOIA Improvement Act of 2016 was signed, which sought to codify the “presumption of openness.” The law amended a range of agency procedures for responding to FOIA requests. This included the creation of a “Chief FOIA Officer Council” and requiring agencies to alert requestors of the services provided by the Office of Government Information Services, the “FOIA Ombudsman”.

Process and Procedures[3]

  1. Who can submit a request under the FOIA? Under most circumstances, anyone, regardless of citizenship, can submit a FOIA request.
  2. What is subject to the FOIA? The FOIA does not apply to Congress, the Judiciary, or the central offices of the White House – only Executive Branch agencies. It also does not apply to state agencies, although all states have laws similar to the FOIA.
  3. What can be requested under the FOIA? Any existing government agency record can be requested. The FOIA does not require agencies to create any new records, answer questions, or perform analysis.
  4. How do you submit a FOIA request? Procedures vary from agency to agency, and requests can be submitted by mail, fax, email or through online forms.  Requests must be in writing, and must reasonably describe the records sought, but there is no single form for submitting requests.

The Nine Exemptions to the FOIA[4]

The FOIA authorizes lawful withholding of information when agencies reasonably determine that release would harm an interest protected by the following exemptions:

  1. Exemption 1: Information that is classified to protect national security.
  2. Exemption 2: Information related solely to the internal personnel rules and practices of an agency.
  3. Exemption 3: Information that is prohibited from disclosure by another federal law.
  4. Exemption 4: Trade secrets or commercial or financial information that is confidential or privileged.
  5. Exemption 5: Privileged communications within or between agencies, including:
    1. Deliberative Process Privilege
    2. Attorney-Work Product Privilege
    3. Attorney-Client Privilege
  6. Exemption 6: Information that, if disclosed, would invade another individual's personal privacy.
  7. Exemption 7: Information compiled for law enforcement purposes that:
  • 7(A). Could reasonably be expected to interfere with enforcement proceedings
  • 7(B). Would deprive a person of a right to a fair trial or an impartial adjudication
  • 7(C). Could reasonably be expected to constitute an unwarranted invasion of personal privacy
  • 7(D). Could reasonably be expected to disclose the identity of a confidential source
  • 7(E). Would disclose techniques and procedures for law enforcement investigations or prosecutions
  • 7(F). Could reasonably be expected to endanger the life or physical safety of any individual
  1. Exemption 8: Information that concerns the supervision of financial institutions.
  2. Exemption 9: Geological information on wells.

The Three Exclusions from the FOIA[5]

There are also three exclusions that protect law enforcement and national security records:

  1. Exclusion 1: Ongoing criminal investigations
  2. Exclusion 2: Criminal investigation informants
  3. Exclusion 3: Classified FBI foreign intelligence

In Part 2we will discuss several more FOIA topics: the various types of FOIA requestors, turnaround times for requests, and the resolution of FOIA requests.  We will also explore FOIA backlog and agency responsiveness; look at some famous FOIA requests in its history; and explore FOI laws in the states and around the world.


[1] The Electronic Frontier Foundation’s  History of FOIA:

[2] The National Security Archive’s FOIA Legislative History:

[3] FOIA.GOV Frequently Asked Questions:

[4] FOIA.GOV Frequently Asked Questions:

[5] FOIA.GOV Frequently Asked Questions:


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Freedom of Information Act, FOIA

Massachusetts Annual Report Tips for Limited Liability Companies [Infographic]

Posted by Terri Lennon on Thu, Feb 16, 2017

Review our helpful tips for filing Massachusetts annual reports for LLCs and avoid the most common reasons for rejection. [Infographic]


To verify the exact, correct name of the LLC on the Massachusetts website, go to:

Don’t forget to check out our Massachusetts corporate annual report tips infographic!

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: LLC Compliance, Annual Reports, infographics

Northward Bound: Registering a U.S. Company To Do Business in Canada

Posted by Teri Mayor on Thu, Feb 16, 2017

By Teri Mayor, National Corporate Research Ltd.Registering a US Company in Canada-2.jpg

As companies look to expand their markets outside the U.S., many are choosing to expand into Canada. An educated work force, the lack of a language barrier and similar governmental and economic systems all combine to make Canada an attractive choice for a company looking to expand outside the U.S.

When deciding to operate in Canada, a U.S.corporation or LLC has several options:

  • Federal incorporation – often used for domestic corporations who wish to operate in multiple provinces, a federal corporation registers with Corporations Canada.  (Learn more about registering federal corporations in Canada)
  • Provincial incorporation – forming a domestic entity in a province
  • Extra-provincial registration – similar to the qualification process in the U.S.

There are a large number of factors that go into this decision, including tax implications and laws governing employment, which are beyond the scope of this article. We will now look at the next steps required if, after considering all the options, a decides to register extra-provincially.

Rules Governing Corporate or Business Entity Name for Extra-Provincial Registrations
The first step is to verify the company’s ability to use its name in the chosen province and file the appropriate registration documents. This process is similar to, but not the same as, registering a company to do business in another U.S. state. Additionally, as is true of the states in the U.S., each province has its own quirks and requirements to register and maintain a company doing business there.  

As in the U.S., Canadian provinces prohibit words that are considered misleading, such as words that would imply the company is another type of entity, a government agency or a company already in existence. Generally speaking, however, Canadian rules regarding name usage and  availability are more stringent than those found in the U.S. Below are some key differences: 

  • Names of dissolved companies are deemed to conflict, even after years have passed since the company became inactive. In most U.S. states, inactive company names are considered to conflict only under certain conditions (such as the company was administratively dissolved) and for a much shorter period (months, rather than years). In Alberta, however, the name cannot be identical to the name of another company unless that company has been dissolved for more than six years. Saskatchewan has a similar provision for identical names, but looks at dissolved companies going back ten years.

  • Consent: In the U.S., in the case of a similar name, it is often possible to obtain consent to use the similar name from the entity that holds it. This can be very convenient in the case of related companies with names that are considered too similar according to the regulations of a particular state. In Canada, a provision allowing for consent is often not included in the statute at all. When you do find allowance for consent, the consenting company must agree to change its name or dissolve within a given period of time, thus removing the conflict. This is true in Alberta, where the consenting entity must agree that it will change its name, dissolve or withdraw within six months of the new company’s registration.

  • Name Generally Must Reflect Purpose: In some provinces, the company may come up against requirements to ensure the name is not too general – that the purpose of the company is clear from the name.  While this is a strict requirement for domestic Canadian entities, and not generally used for extra-provincial entities, there are provinces, like Saskatchewan, with statutes that allow the provincial corporate administrator to decide that the name is not descriptive enough.

  • In Quebec, you will run into French language requirements. Not only are all the forms and search results in French, in accordance with the Charter on French Language, the company name must also be in French. A company may also use the English version, but is required to use the French version when registering and anywhere the name is displayed in Quebec. Certain exceptions do get made – geographical and personal names do not have to be translated and exceptions can be made for certain expressions. For example, Toys “R” Us was not required to translate its name, but is registered in Quebec as Toys “R” Us, (Canada) Ltee. (“Ltee” is the French equivalent of “Ltd.”)

Registering a Limited Liability Company (LLC) to Do Business in Canada
When the U.S. company looking to do business in Canada is an LLC, it can add a wrinkle to the registration process. The provinces of Canada do not currently have limited liability company statutes and how they handle the registration of U.S. LLCs varies a great deal from province to province. The differences can range from treating them just like corporations to registering them under a different statute altogether. Below is a sampling of how different provinces handle LLCs wanting to register:

Alberta:  When a U.S. LLC wishes to register under Alberta’s statute governing extra-provincial corporations, the application for registration must be accompanied by a legal opinion issued by the company’s attorneys that attest that the LLC is a body corporate under the laws of its home jurisdiction, rather than a partnership or unincorporated association, and that it has the various attributes of a corporation, including limited liability for its members along with the ability to sue and be sued, make contracts, hold property, etc. in its own name. 

British Columbia:  British Columbia specifically includes limited liability companies in the Business Corporation Act. It refers to “foreign entities” rather than foreign corporations and specifically refers to the structure of limited liability companies in its definitions, indicating that the term “director” refers to a manager and “shareholder” refers to member when used in relation to a foreign LLC.

OntarioIn Ontario, extra-provincial LLCs do not register under the Ontario Business Corporations Act, but under the Ontario Business Names Act, as would a Limited Liability Partnership. Extra-provincial LLCs are not required to maintain an attorney for service or a registered agent, as an extra-provincial corporation would.  Instead, they must provide their place of business either in Ontario, if such exists, or in their home jurisdiction if they do not have an Ontario place of business.

Quebec:  Extra-provincial entities of all types register under the “Act Respecting the Legal Publicity of Enterprises” (Loi sur la publicité légale des entreprises) and not the Business Corporations Act. U.S. LLCs are handled the same way as corporations for registration purposes.

Saskatchewan: While The Business Corporations Act of Saskatchewan refers only to corporations when speaking of extra-provincial registrations, in practice, U.S. limited liability companies register under that act in the same way corporations do.

Registration is Only One Step in the Process
While registering as an extra-provincial entity is not a complex filing, there are a number of ways each province differs from the U.S. and from each other. Knowing and being prepared for these differences can help make the process smoother, minimizing delays and problems. The registration process is only one step for a U.S. company desiring to conduct business in Canada, paving the way for other tax and license registrations that may be required. To avoid issues and ensure that all the bases are covered, reviewing all requirements with an attorney versed in Canadian law is highly recommended.


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Tags: International Transactions, Canada

Massachusetts Annual Report Tips for Corporations [infographic]

Posted by Terri Lennon on Wed, Feb 15, 2017

Review our helpful tips for filing Massachusetts annual reports for corporations and avoid the most common reasons for rejection. [infographic]


To verify the exact, correct name of the corporation on the Massachusetts website, go to:

Check out our Massachusetts LLC annual report tips infographic!


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice. 

Tags: Corporate Compliance, Annual Reports, infographics