Important Legislation Impacting Small Business
By: Jonathan C. Wolnik
The 2021 new year arrived with two important legislative changes that impact privately owned businesses. The first pertains to a new federal law that will require the identification and disclosure of privately held business owners. It is known as the Corporate Transparency Act (“CTA”).
The CTA was passed as part of the National Defense Authorization Act with the stated goal of combating money laundering and other illicit activity occurring through anonymously owned shell companies operating in the U.S. To aid in the fight against these illegal activities, the CTA will require most privately held businesses to identify and report their beneficial ownership to the Financial Crimes Enforcement Network (“FinCEN”) at the U.S. Treasury. Companies required to report such ownership are generally those companies formed or registered to do business in the U.S. The CTA’s statutory reporting exemptions mostly apply to companies otherwise already required to register with the federal government in some form or another.
For compliance purposes, privately owned companies will be required to identify and report beneficial owners that own at least 25% of the company or exercise substantial control over the business. Certain owners are exempt from reporting, such as minors, employees, heirs, or creditors. Ownership information gathered by FinCEN will be stored with the Treasury and shared with law enforcement or regulatory agencies as necessary, but generally will not be made available to the public. Reporting will include each beneficial owner’s name, current residential or business address, date of birth, and a unique identification number.
The Treasury will be providing regulations during 2021 to help clarify the CTA’s reach and its implementation. In the interim, privately held companies should be consulting with their advisors to discuss forthcoming compliance as the CTA will take full effect on January 1, 2022. Newly formed businesses in 2022 will be required to comply with the CTA in conjunction with the entity’s formation. Entities existing prior to 2022 shall have a grace period by which to obtain compliance with the CTA.
The second significant legislative update occurred at the state level, being that Ohio enacted a new limited liability company statute. Like the CTA, the new Ohio Revised Limited Liability Company Act (“ORLLCA”) takes effect January 1, 2022.
The ORLLCA is intended to modernize Ohio’s LLC statute. The most significant change from the preexisting LLC statute is that Ohio will now permit the existence of “Series LLCs”, beginning in 2022. Series LLC’s are already recognized in certain other states, such as Delaware and Texas. Series LLC’s are generally intended to provide certain administrative conveniences by allowing for internally designated interests, assets, and operations of an “independent series” all within one LLC, thus reducing the need for extra LLCs to segregate business operations or assets and insulate liability. The most critical aspect of a Series LLC is that, when properly used, liability within the series is limited only to the assets of that same series.
Additional guidance and rules on both legislative changes discussed herein are anticipated throughout 2021. Business owners should be discussing these new rules with their advisors during 2021 in preparation of each taking effect when 2022 arrives. Please contact your attorney at McCarthy Lebit to review these new laws and strategize for their impact upon your business.
Jonathan Wolnik is an attorney at the Cleveland, OH-based law firm McCarthy, Lebit, Crystal & Liffman.