Whose company is it, anyway? You may have to wait a little longer to find out, but chances appear good that transparency is on its way — for many private companies.
New regulations have been passed, and at least for now put on hold, that would require many companies to file documents disclosing their owners. The federal government, through the Corporate Transparency Act, would require millions of companies to identify their beneficial owners in an effort to see if they might include criminal enterprises or others that violate laws.
Businesses would be required to disclose individuals who exercise “substantial control” over a company or own or control at least 25%. There could be daily fines of $500 per day for not filing a report.
The regulation is designed to pull back the veil on shell companies designed to conceal ownership, among other things. But it would apply to a wide range of businesses, ushering in a new era of transparency.
While supporters say this is warranted, critics argue this may be overreaching and even unconstitutional, breaching privacy, leading to lawsuits that put the mandatory measure on hold.
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The U.S. Supreme Court on Jan. 23 ruled in the federal government’s favor after a federal judge in Texas put the requirements on hold through Texas Top Cop Shop, Inc. v. McHenry.
A separate nationwide order, however, already had been issued by another federal judge in Texas in Smith v. U.S. Department of the Treasury, so FinCEN said reporting is still not mandatory.
“Reporting companies … are not subject to liability if they fail to file this information while the Smith order remains in force,” the Financial Crimes Enforcement Network wrote. “However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
FinCEN, part of the U.S. Department of Treasury, even before the Supreme Court ruling, indicated it contends that these regulations will pass muster and comply with the U.S. Constitution.
“The government continues to believe — consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon — that the CTA is constitutional,” FinCEN stated.
The National Federation of Independent Business, however, said it was disappointed that the Supreme Court did not seek to block the regulations.
“Today’s decision is a setback for small business,” said Beth Milito, vice president and executive director of NFIB’s Small Business Legal Center. “Hopefully, Treasury recognizes the chaos that will ensue by requiring 32 million small businesses to imminently file (beneficial owner information) while the constitutionality of the reporting requirements is determined.
The Long Island Association believes it’s important for companies at least to be up to date on the status of these reporting requirements.
“It would be helpful to get this information out to the business community that they no longer need to file until further notice,” a statement issued by the LIA indicated. “Many may have filed already, and it is now voluntary.”
Some accountants are still recommending that companies report information, rather than wait until and unless it’s required.
“We have been recommending that they still make the effort to file, as the process is relatively simple for most business entities,” said Jacob Lutz, a director at the accounting firm Cerini & Associates in Bohemia. “It is our expectation that the program will eventually be revived in the future with a new due date.”
Lutz said if the regulations are overturned, the government would simply delete data that should take most companies very little time to assemble.
“Non-filing, however, could have significant penalties,” Lutz said, “so we are recommending everyone make the effort now while it’s fresh on everyone’s minds, so that they don’t forget about it and end up incurring penalties down the road.”
Federal reporting requirements for beneficial ownership Information originally were scheduled to take effect on Jan. 1, 2024.
Companies required to report include corporations, limited liability companies, businesses formed through some other processes, and foreign companies registered to do business in the United States.
Twenty-three types of entities are exempt including publicly traded companies, nonprofits, and certain large operating companies.
Companies would report beneficial ownership information electronically through FinCEN’s website.
