Ah, the Panama Papers – remember that? What about “Essential Consultants, LLC” – does that ring a bell? Without going down the rabbit hole that either of those links could send you down (c’mon – click one!) suffice it to say that both were made possible by federalism and the fact that corporations and LLC’s are a creation of state statute – not federal law. This translates into a patchwork of laws and regulations that govern the creation of business entities in our country, and by extension, the amount of information the owners have to disclose to the government when they are created.
Anyone who has created a company in Wisconsin knows – the WDFI is not collecting a whole lot of information. For example, to create a new LLC in our state one must provide, essentially, three things:
- The name of the company;
- Its registered agent (the fancy term for “guy who will receive mail from the State and get served if the Company is sued”). Contrary to popular belief, the registered agent doesn’t have to be an owner, and very rarely is. Rather, the RA has to be someone in the state and consequently, a cottage industry of companies like Corporation Services of America and inCorp have made their bread and butter acting as RA’s for companies all over the United States;
- The name of the Organizer. The Organizer is another fancy term that means, “guy filling out the form with the WDFI to create the company,” is does not mean “owner.” To put it in perspective, I\Erin\Jeff are the organizer for almost every company that OGS creates for a client.
Owners? Members? Shareholders? That information is not disclosed. Often, new entrepreneurs will ask us “What happens to the Operating Agreement (or Bylaws)? Does that get filed with the State?” NOPE! What this means is, there is no easy way for anyone, our government included, to figure out who owns or controls a company. Yes, there are IRS records – but those are not full proof, especially if the company at issue is not filing taxes (Nor are tax records easy to get). Yes, there are some states that collect a lot of information (here’s looking at you Illinois) but with more than 50 jurisdictions to deal with, there is nothing close to a federal database of “beneficial ownership.” (another fancy term for “who the heck owns this company?”)
Now, you might be asking – isn’t that a good thing? Sure, it might be. Privacy is an important consideration, to be sure. But, when it comes to money laundering, human trafficking, and other unsavory means of making a buck – you can imagine how privacy may take a back seat. Additionally, in comparison with the rest of the world – the United States, as a whole, is collecting…basically a mailing address. Certainly, countries like those in Europe, and our friendly neighbor to the south, Mexico, are collecting a lot more information – including the names, and addresses, of the owners.
Well, America, things are about to change….
Tucked into the National Defense Authorization Act is the Corporate Transparency Act, which will take the first step to creating a database of beneficial ownership of the companies in the United States. From the date the bill passes, all new companies will have to provide the following information on beneficial owners – and all existing companies will have approx. 2 years to do so:
(i) full legal name, (ii) date of birth, (iii) residential or business street address, and (iv) unique identifying number from an acceptable identification document, including a state driver’s license, U.S. passport, or other U.S. state-issued identification document. If the beneficial owner does not hold any U.S.-issued identification documents, a non-U.S. passport number is required.
This database will not be available to the public, so fear not! But, regardless – this change is nothing short of a paradigm shift for the USA. As we look forward to 2021, add this to your list of things to do!
It will be so interesting to see if this changes the Ponzi scheme game at all….