House OKs New Small Biz ReportingJune 19, 2019
In a June 11 “mark-up,” the House Financial Services Committee approved a bill designed to provide transparency of ownership of all U.S. companies, but which would create significant unintended consequences with new burdens and complexity for America’s small businesses.
The legislation (H.R. 2513, The Corporate Transparency Act) would require nearly every small business to file new reports with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) detailing all “beneficial owners” of the company, including significant personal identifying information for all owners. The bill would require this reporting for existing businesses within 2 years of enactment, new businesses at incorporation and formation, and for every business annually (though the bill authorizes agencies to require more “real-time” reporting when there is a change of any owner).
The legislation would impose a “look-through” reporting requirement, necessitating small-business owners to look through every layer of corporate and LLC affiliates to identify if any individuals associated with such entities are qualifying beneficial owners. Ownership of an entity by one or more other corporations or LLCs is common. Corporate and LLC shareholders would already have their own independent reporting obligation under this bill to disclose any beneficial owners, making this provision excessively burdensome.
The legislation requires the Treasury Department to keep the beneficial ownership information for the life of the business plus five years and grants broad access to the information to federal, state, local, or tribal law enforcement agencies for virtually any reason through a simple request. While the bill has added some language designed to protect privacy, the potential for improper disclosure or misuse of the private information increases as the number of people with access to the information increases.
This bill is now likely to move forward for approval of the full House of Representatives. The Senate is likely to consider similar legislation later this year.