The anonymity of beneficial ownership of corporate and LLC interests has been a “feature” of small business governance for time immemorial.
This has vexed federal, state and local regulators, as well as private litigants trying to get to the bottom of their ownership puzzle. And it has been a source of comfort to owners who want — for whatever motivations — to remain anonymous. As a result, there are limited circumstances in which states (Kentucky, for example) and cities (City of Cincinnati, for example) presently do require disclosure of ownership of LLCs and corporations that hold real property in their jurisdictions.
But, by and large, the beneficial ownership of closely-held corporations and LLCs is a “black hole” in terms of registration of the identities of owners of closely-held businesses and limited liability companies.
In a limited way, that anonymity comes to an end in one year according to a final federal rule issued in September:
- As of January 1, 2024 the Corporate Transparency Act requires newly-formed LLCs and corporations to disclose information about their beneficial owners to the federal Financial Crimes Enforcement Network (FinCEN) within 30 days, and
- Corporations and LLCs that existed prior to January 1, 2024 must make that same disclosure by January 1, 2025.
The reason for the new law, according to FinCEN, is “to crack down on illicit finance and enhance transparency…to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds.”
FinCEN has also issued a proposed rule (to be finalized later this year) for sharing the information with other federal, state and local agencies. From the proposed rule:
FinCEN’s proposal limits access to beneficial ownership information to Federal agencies engaged in national security, intelligence, or law enforcement activities; state, local, and Tribal law enforcement agencies with court authorization; financial institutions with customer due diligence requirements and regulators supervising them for compliance with such requirements; foreign law enforcement agencies, prosecutors, judges, and other agencies that meet specific criteria; and Treasury officers and employees under certain circumstances. FinCEN further proposes to subject each category of authorized recipients to security and confidentiality protocols that align with the scope of the access and use provisions.
In other words, the general public will not have access to beneficial ownership information filed with FinCEN, but it will be shared with state and local law enforcement as appropriate.
These rules will certainly call for the end of 100% anonymity for closely-held corporations and LLCs and a mandatory new federal filing requirement for each entity (presumably updated as ownership changes from time to time). Whether it will change the way small businesses in America are substantively regulated is yet to be seen.
Please contact Eli Krafte-Jacobs (513.797.2853), Isaac Heintz (513.943-6654) or Casey Jones (513.943.5673) for more information on the Corporate Transparency Act and these new regulations or about your closely-held business issues generally.