Now , in all filings , the name , state of residence and business address of every person with either a 10 % or greater ownership in the LLC , or who controls daytoday operations of the entity , must be provided .
It is not hard to visualize the next step from this collection of information . Plaintiff ’ s attorneys will be suing not only the LLC , but also the LLC ’ s individual owners . In some cases , the courts will dismiss any personal claims when the liability rests with the LLC . But in many cases the suing of individuals will be used to gain leverage in the litigation . And again , the limited liability protection of the LLC will be diminished through government regulation .
At the federal level , the U . S . House of Representatives recently passed the Corporate Transparency Act of 2019 . The bill , which requires the disclosure of beneficial owners of corporations and LLCs , is now before the Senate . If enacted , every entity filing under “ the laws of a state or Indian Tribe ” shall file a report with FinCEN containing the name , date of birth , address and passport or personal ID number of every beneficial owner .
FinCEN stands for the U . S . Treasury ’ s Financial Crimes Enforcement Network . Founded in 1990 and broadened under the Patriot Act in 2002 , the agency tracks suspicious currency activities and other illicit financial activities .
Congress justifies the need for beneficial ownership information under the following finding :
“ Criminals have exploited State formation procedures to conceal their identities when
Image by Ashby C Sorensen from Pixabay forming corporations or limited liability companies in the United States , and have then used the newly created entities to commit crimes affecting interstate and international commerce such as terrorism , proliferation financing , drug and human trafficking , money laundering , tax evasion , counterfeiting , piracy , securities fraud , financial fraud , and acts of foreign corruption .”
If the Senate passes it , the bill would also require entities to file an annual report containing the current owners and any changes in beneficial owners during the previous year as well . The law would prohibit the issuance of bearer shares , whereby the owner is not identified as a shareholder on a share or membership certificate .
The act defines beneficial owner as a natural person who directly or indirectly owns 25 % or more of the entity ’ s equity , or who exercises substantial control or who receives substantial economic benefits from the entity . As to the last standard , the Treasury Secretary gets to determine what percentage of ownership equates to substantial benefit . Conceivably , every entity owner , no matter how small their ownership , could be are required to disclose their personal information .
Would criminals provide false beneficial ownership information anyway ? Perhaps . The penalty for doing so is a fine of up to $ 10,000 and prison time of up to three years . But an offshore straw man with no U . S . contacts could certainly , for the right price , put forward their passport and personal information for the benefit of a real bad guy .
Of course , as a consequence of trying to catch some criminals , every single American business , every single entrepreneur and real estate investor using a corporation or LLC , millions and millions of them , must now file initial and annual reports – forever !
● Can FinCEN handle that much reporting ?
● Can they handle the responsibility to keep all that information private ?
● Should you ask your U . S . Senate candidates if they support this bill ?
The Electronic Frontier Foundation in San Francisco has questioned the benefits of FinCEN compared to the loss of individual privacy . They question the effectiveness of FinCEN ’ s “ Suspicious Activity Reports ”, and why no studies have identified how many reports are filed on innocent people . If the Senate passes the Corporate Transparency Act of 2019 , the Foundation ’ s longtime concerns of Fourth Amendment protections against unreasonable searches and seizures will come again to the fore . Any government investigator will be able to use FinCEN ’ s database to investigate people instead of crimes . Governments offer less protection and want more information about LLCs and corporations . Where does it lead ?
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