sparrow on the deck at Money Island NJ 12/23/2023.

Business Ownership Information Disclosure

Absent any last minute action this week, the federal Corporate Transparency Act of 2021 becomes effective next week. Efforts by groups including our NJCPA to delay the start seem to have failed. As with any business issue in modern life, there is as much misinformation as real information. I want to be clear that this post is opinion, not fact, on what to expect ahead.

For many years some of us used a combination of multiple state business entity state laws to increase the level of privacy about business ownership. For example, a popular strategy (I’ve heard, I have not recommended) is to use an LLC filed in Wyoming using a Texas attorney as registered agent operating under a locally filed DBA to operate rental real estate in New Jersey. In 2023, a new law in the State of Delaware made it more difficult to do this for entities filed there. Yesterday New York’s governor signing into law an even more compelling business ownership information disclosure law.

I expect that other states will begin to consider requirement disclosure of business ownership information. I expect that these laws are more likely to pass in Democrat-controlled states than Republican-controlled states. This will likely lead to circumstances where following the letter of the law in one state will violate the intent of the law in another state. For dramatic effect, we could view this as the opposite of the abortion travel ban. Some states will prefer to protect investors from public disclosure, other states want to push the issue. Messy.

For now, I will stick to these talking points:

  • Some states already have business ownership information laws in place and others are planning to expand or amend it.
  • It appears that there is at least one legal loophole that, mechanically at least, would allow an individual to avoid disclosure of business ownership information.
  • I am not informed on multiple state law and even if I was, I am not authorized to advise on the issues.
  • If it is possible to avoid business ownership information in a state where the intent of the law was to require this disclosure, this could raise ethical issues for a practitioner.
  • I never had any doubt that the primary purpose of BOI disclosure that to increase tax compliance on U.S. owners, not international actors.
  • At this point there are more questions than answers, so ownership and legal liability strategies should follow most likely scenarios without assurance.