By: Ryan M. Coady, Esq.
One of the coveted and long afforded benefits of business associations has been anonymity for its owners. In Ohio, for example, it’s possible to form a limited liability company with only the registered agent’s name appearing on the public records of the Secretary of State. Shy of forensic tax and financial accounting, it has been difficult if not impossible to crack a well-played shell game. But as the proverb says, “all good things must come to an end.”
Enacted January 1, 2021–but taking effect TBA in 2022–the Corporate Transparency Act or CTA, codified at 31 U.S.C § 5336, will introduce new federal mandatory-incorporation disclosures to combat illicit activity such as money laundering and funding terrorism.
Under the new law, reporting companies are required to submit a Beneficial Owner Information (BOI) Report to the Financial Crimes Enforcement Network (FinCEN) identifying each of its beneficial owners and the company applicant. FinCEN is a unit of the Treasury Department focused on the same illicit activity as the CTA. The reporting obligations are targeted at small(er) companies but casts a wide net in defining reporting company. There are several exemptions, exceptions, and other nuances yet to be hashed-out which is proving more complicated than proponents had hoped. FinCEN has rulemaking authority but missed its own deadline on January 1, 2022, prolonging a tizzy of speculation about exactly what the new law requires.
While the aims and regulatory efforts are not entirely new, the CTA is nothing short of a paradigm shift for the average business and its owners. Those forming business entities have always expected a degree of privacy. American society places a premium on privacy that can be seen in the flurry of privacy-policy notices and updates inundating your inbox. But unlike individual privacy rights, there are no well-defined constitutional or common-law privacy principles protecting businesses. Therefore, proponents argue that piercing this veil is long overdue.
Once the CTA’s sweeping scope is more defined, the challenge immediately becomes compliance. The definition of reporting company encompasses any entity formed by filing organizing documents with the state. Virtually all new limited liability companies, corporations, and trusts formed after the effective date will need to submit a BOI report within days of filing the organizing documents with the state, which can be difficult as a practical matter. Depending on the exact wording of the forthcoming regulations and guidance, certain practices in corporate organization may disappear altogether and the reverberating effects are foreseeable for years to come.
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