National Beneficial Ownership Reporting Coming for Wisconsin Limited Liability Companies and Other Entities
Jeff Storch | 03.24.21
While Chapter 183 of the Wisconsin Statutes (Wisconsin’s Limited Liability Company Act) does not require listing the members of a limited liability company (LLC) in the LLC’s operating agreement or annual report, the Corporate Transparency Act, adopted as Title LXIV of the 2021 National Defense Authorization Act (the NDAA), requires the creation of a national database of the “beneficial ownership” of many entities, including LLCs. Therefore, federal reporting of certain LLC members will be required in the future.
As background, in November 2020 the Corporate Transparency Act added the NDAA to HR 6395. In December 2020, the House and Senate passed the NDAA, though it was vetoed on December 23, 2020. However, that veto was overridden January 1, 2021.
The NDAA requires entities subject to it (“reporting companies”) to register “personally identifiable information” of their “beneficial owners” with the Financial Crimes Enforcement Network (FinCEN) and update that information regularly for the life of the business. Reporting exemptions apply for several different categories of entities, including:
- publicly traded companies.
- entities with over 20 full-time employees and more than $5,000,000 in gross receipts or sales and who have an operating presence at a physical office within the United States.
- certain businesses engaged in financial services or otherwise already regulated.
Despite these exemptions, many if not most LLCs will be subject to these rules. Willful non-compliance could result in jail time of up to two years and fines of $500 per day, up to $10,000.
“Beneficial owner” means an individual who directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise: (i) exercises substantial control over an entity, or (ii) owns 25% or more of an entity.
“Beneficial owner” does not include (i) a minor child; (ii) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; (iii) an individual acting solely as an employee of the entity; (iv) an individual whose only interest in the entity is through a right of inheritance; or (v) a creditor, unless the creditor otherwise meets the requirements of being a beneficial owner.
Information to be reported for each beneficial owner includes their full legal name, date of birth, current residential or business address, and either (i) a unique identifying number from an “acceptable identification document” (a nonexpired US passport, a nonexpired drivers’ license or other identification document issued by a State, local government, or Indian Tribe, or, if the owner has none of those, a nonexpired passport issued by a foreign government) or (ii) a FinCEN identification number.
Many details are being left to regulations yet to be issued. The Treasury Department has until January 1, 2022 (one year after passage of the NDAA) to issue the regulations. Until then, there is little guidance to go on.
As for timing of reporting:
- existing entities that are reporting companies under the NDAA must file within two years of the regulations’ effective date.
- reporting companies created after the adoption of the regulations must file their beneficial owner information at the time of formation.
- reporting companies must report any changes in beneficial owners within one year after the change.
FinCEN may disclose beneficial ownership information upon receipt of a request (i) “through appropriate protocols” from a Federal agency engaged in national security, intelligence, or law enforcement activity, for use in furtherance of such activity; or from a State, local, or Tribal law enforcement agency, if a court of competent jurisdiction has authorized them to seek the information in a criminal or civil investigation; (ii) from a Federal agency on behalf of a law enforcement agency of another country; (iii) made by a financial institution subject to customer due diligence requirements, with the consent of the reporting company; or (iv) made by a Federal functional regulator or other appropriate regulatory agency, consistent with requirements of the forthcoming regulations.
In preparation for the new filings, LLCs should review confidentiality clauses in operating agreements to make sure those clauses do not conflict with the new reporting requirements. LLCs also may want to include in their operating agreements express obligations of members and managers to provide the information necessary for the LLC to submit the required beneficial ownership reporting information. Other entities that will be considered “reporting companies” likewise should review their governing documents for any appropriate revisions.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.