Action on Beneficial Ownership LawSeptember 18, 2019
The Senate Judiciary Committee is expected to mark-up the True Incorporation Transparency for Law Enforcement (TITLE) Act (S. 1889) this year. This bill is extremely similar to the Corporate Transparency Act (H.R. 2513), which NSBA has opposed. The TITLE Act would require states to collect the beneficial ownership (name, date of birth, address, driver’s license number of anyone with an ownership stake) of small-business owners at incorporation and require annual and periodic updates of that information. Some estimate it will create a new reporting burden for over $5 million small businesses. Failure to comply with this legislation would result in up to 3 years in prison and $1 million in fines.
While both bills are designed to provide transparency of ownership of all U.S. companies, they would create significant unintended consequences with new burdens and complexity for America’s small businesses. NSBA is urging members to contact their lawmakers to oppose the legislation.
The TITLE Act and Corporate Transparency Act would amend the Bank Secrecy Act to require an applicant seeking to form a corporation or limited liability company (LLC) to disclose the “beneficial owners” of the entity. The applicant must also file an annual report with the Financial Crimes Enforcement Network (FinCEN) that lists any beneficial owners. The initial filing and the annual reports must include the full legal name of the beneficial owner, his or her date of birth, residential address or business address, and an identification number from either a passport, identification card or driver’s license. Due to these requirements, NSBA is concerned about the potential for a massive breach of privacy. This new legislation, which grants broad access to personal information could be used by federal, state, local, or tribal law enforcement agencies for just about any reason — and without a subpoena.
The legislation imposes 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.
Under the bill, the term “beneficial owner” is vague. Though one determination is objective — one owning “25 percent or more of the equity” of the business — the other two definitions are open for interpretation. Specifically, the bill would include as a beneficial owner an individual who “directly or indirectly…exercises substantial control” over of a corporation or LLC, or “receives substantial economic benefits from the assets” of the entity. The definition of “substantial economic benefit” is defined, but insufficiently clear, and is open to later rulemaking by government officials. Further, rulemaking authority would be given to the Department of the Treasury that could potentially expand the requirements for businesses and, in turn, widen the scope of potential criminal liability.
For NSBA, what is most concerning and perplexing about these bills is that they target small businesses by explicitly excluding businesses that have over 20 employees and more than $5 million in gross receipts or sales. The bill would create paperwork burdens for these small businesses that will be required to comply with the mandates of the bill. Failure to comply with this legislation would be a federal crime with civil penalties of up to $1 million and criminal penalties of up to three years in prison.
For these reasons, NSBA urges you to contact your lawmakers and ask them to oppose the TITLE Act (S. 1889) Corporate Transparency Act, H.R. 2513.