Origami Legal
2021 Vol 1

The end of 2020 saw a flurry of legislation become law, three of which are relevant business owners, nonprofit leaders, and creative professionals and practitioners. This newsletter will brief you on what you need to know about The Corporate Transparency Act, and the next two newsletters will focus on the The CASE Act, which establishes a federal small claims court for copyright matters, and the TM Act of 2020, which will impact your trademark and brand management strategies.

Looking forward, we expect that the change in political control of Congress and the Executive branch will lead to many legal changes impacting businesses, nonprofits, and creatives. Read future updates to stay informed about how changes impact you.

The Corporate Transparency Act – The End of Small Business Anonymity

Key Takeaway

At some point in the next couple of years, many small businesses will need to disclose their “beneficial owners” to the federal government, and the disclosure will be required again whenever beneficial ownership changes. Several exemptions apply, including for 501(c)(3)s and other tax exempts. Ultimately, this just requires a little bit of one-time reporting work for new and existing businesses, and occasional reporting when ownership changes.

What You Need to Do

Right now, you don’t need to do anything. When the regulations are finalized, many existing small businesses will need to file a report with FinCEN, and most new entities will need to file a report. The deadline is likely to be at some point in the next two years, but at this point it is too early to file – you’ll have to wait until the regulations are all set. You can expect more information then.

Will the Reporting Requirements Apply to My Business or Organization?

There are a number of exemptions, including for publicly traded companies. The following exemptions are the ones most likely relevant to Origami Legal’s readers and clients:

  1. Mid-Sized Businesses: Businesses with (a) at least 20 full-time U.S. employees; (b) a U.S. tax return filed in the previous year that lists at least $5,000,000 in gross receipts or sales; and (c) an operating presence at a physical office located in the United States.
  2. 501(c)(3)s and other Tax Exempts: Nonprofit organizations are exempt from reporting requirements as long as they remain tax-exempt.
  3. Sole Proprietors: True sole proprietors, meaning single-member businesses that have not formed an LLC, corporation, etc.
  4. Existing But Unused Entities: Entities that (a) have already existed for over one year, (b) do not have any assets and have not received or transferred more than $1,000 in the past 12 months, and (c) are not owned by any non-U.S. tax residents.

What Information Will be Collected

Qualifying entities will need to submit the following information about their beneficial owners: their legal name, residential or business address, date of birth, and an ID number from a U.S. or foreign passport or a U.S. state, local government, or tribal ID card, such as a driver’s licenses.

*”U.S. state” includes commonwealths, territories, and possessions.

Will the Information Be Made Public?

Information reported under this law will NOT be publicly available as it is in many countries. It will only be used by government agencies for tax and law enforcement purposes. Having said that, the federal government does not have the best track record in data security, so it is possible the information will leak at some point.

What is a Beneficial Owner?

There are two ways someone will qualify as a beneficial owner.

The first is by owning at least 25% of a company.

The second is by exercising “substantial control” over the company. What “substantial control” means is currently unclear and we will probably need to wait for additional regulations to know. We can guess based on what “substantial control” means under other laws and regulations, but right now there’s no way to know with any useful certainty.

Why Was This Law Enacted?

The U.S. has long been atypical in that it is relatively easy to open and operate a business entity here without the government knowing who ultimately owns it and its assets. This has made the country a haven for tax fraud and other asset shell games. This law is part of an effort to change that.