Tiny Bites: The Corporate Transparency Act and What You Need to Know

Emily Walker: Hey, there. This is Emily from the Food Blogger Pro team, and you’re listening to Tiny Bites from the Food Blogger Pro Podcast. This time on Tiny Bites, Bjork is interviewing Danielle Liss from LISS Legal. She also happens to be the legal expert at Food Blogger Pro. They are chatting about the recent Corporate Transparency Act that went into effect on January 1st, 2024, and what you need to know about it as a small business owner. They go into what this new act is, what you need to do about it, and when you need to complete everything to be compliant. It’s a necessary listen for any small business owner, and we know you’ll get a lot out of it.

Just a reminder that you can head to foodbloggerpro.com to read the show notes for this episode, which has a written description of everything that was discussed, as well as some helpful resource links. Without further ado, Bjork, take it away.

Bjork Ostrom: Danielle, welcome to the Tiny Bites podcast episode.

Danielle Liss: Thank you so much for having me. I’m excited to be here.

Bjork Ostrom: You’re a seasoned guest on the podcast. People I’m sure are familiar with you, who follow along. First time on a quick episode like this talking about a specific subject. And the purpose for these Tiny Bites episodes is to talk about something that’s relevant in the moment and that people need to know about. And what we’re going to be talking about today is this thing called the Corporate Transparency Act, which sounds kind of intimidating, it sounds very legal, and that’s why we’re having you on, because that’s what you specialize in, specifically understanding the world of legal considerations for creators, for bloggers, for people who have social media followings. Working in that world, you understand that world well.

So for those of us who are in that world, what do we need to know about the Corporate Transparency Act?

Danielle Liss: So the first thing that I want people to know is it does not need to scare you, especially if you are a small business owner. This is not going to be as terrifying and cumbersome as it sounds. So the Corporate Transparency Act is part of an anti money laundering law that went into effect, and the goal is to create information reporting requirements on companies and their beneficial owners, so that way it will help law enforcement agencies better track who is affiliated with certain companies for purposes of money laundering.

Bjork Ostrom: Can you explain money laundering for people who don’t know? I’m trying to remember, Lindsay and I didn’t watch all of this, but there’s that show on maybe Netflix, do you know this one, and the guy’s like a family man?

Danielle Liss: Ozark.

Bjork Ostrom: Ozark, yeah.

Danielle Liss: Yes.

Bjork Ostrom: The whole theme of that is money laundering, and he’s trying to figure out how to launder money.

Danielle Liss: If you have watched Ozark, Breaking Bad, probably a little Better Call Saul, you’ve probably got some of the themes. But it’s essentially to take money that you’ve gotten maybe a not legal way, definitely not legal way, and trying to put it through a business to wash the money, hence the laundering term, to make it look clean.

Bjork Ostrom: So like example being you’re selling drugs, but then you also have a coffee shop and then you inflate the earnings from that coffee shop and include some of the money from the drugs that you’ve sold. So you can still report it as income and then deposit it and not feel as worried about it.

Danielle Liss: Yes.

Bjork Ostrom: But in reality, maybe the coffee shop isn’t profitable, but the reason that you’re making money is because you have a drug selling business on the side.

Danielle Liss: Exactly. So if you’ve seen Breaking Bad, it’s the carwash. Because they really took the metaphor with that, right?

Bjork Ostrom: Sure, yeah. Literally.

Danielle Liss: They’re cleaning that money. So it really can come up in the more illegal types of businesses, which I don’t, I’m guessing hopefully maybe most of your listeners are probably not.

Bjork Ostrom: On the straight and narrow. Yeah.

Danielle Liss: Yeah. I’m guessing they’re probably okay. But that’s the goal of the law, is to help prevent people from forming companies in a way that is attempting to protect them, and the government from finding out who owns the companies when they need to investigate money laundering. It unfortunately does trickle down to small businesses, which is why we are talking today because it definitely will impact small businesses.

What I think for most people, there’s definitely, you hear about it and there’s just this level of what now? Then there’s the idea of it’s one more thing you’ve got to deal with, right?

Bjork Ostrom: Yeah.

Danielle Liss: So I am here to say for typical small businesses who are operating a legal business, I don’t think it is going to be that bad. I think it’s going to be one thing to remember and one thing to remember to update if it’s needed. But for the most part, it has not shown itself to be something that’s going to be overly cumbersome.

Bjork Ostrom: And the basic idea is there’s this understanding in government that there are businesses that are laundering money, and as a way to combat that, what they’re trying to do is get a better understanding of who is behind the businesses. And so corporate being business, transparency being visibility into those businesses, act being this new thing that they’re pushing out. So the Corporate Transparency Act, meaning we want to know who’s connected to these businesses so they’re not quite as anonymous, and then setting up an official process around that.

But also, not to inject fear into the considerations here, but there’s some pretty hefty fines that go along with it if you don’t do this. Do you know what those are off the top of your head? I’ve heard them, but I don’t remember. It’s like if you missed a deadline and you don’t do it, it’s like $500 a day or something like that.

Danielle Liss: Something like that. And there can also be criminal fines too. I think that it’s unlikely, and I think that whenever something is first starting, I think there is a lot of leniency and there are a lot of reminders provided. But yeah, if it’s something that you’re very actively avoiding, then there could be potentially some ramifications that come with that.

Bjork Ostrom: It’s almost like in the same category as taxes. You can’t just not do your taxes because there’s going to be negative ramifications that come with it. You can’t just not do this new Corporate Transparency Act because there are negative ramifications that come with it.

So who would this apply to first? So if you don’t have any type of legal structure, you have a blog, maybe you’re making a little bit of money from it, you’re submitting it on your personal taxes, does that include you in the category of sole proprietor? You don’t have an official LLC, do you need to be doing this?

Danielle Liss: No. So the folks who do need to do it, there are what’s considered reporting companies. Sole proprietors are not considered a reporting company because you and your business are one and the same. So LLCs are required, as well as corporations. And at that point, I think it’s, if you’ve got a different type of structure, that’s when I would say please talk to your lawyer to see if there’s anything that you need to do.

But for the most part, I think that most of the folks that are in your audience are likely probably LLCs, possibly corporations as well. So if you have established a business entity, so that is separate, that is when you want to start to consider whether or not you’re going to need to do your reporting.

Bjork Ostrom: Got it. So it makes sense. Corporate Transparency Act, it applies to corporations. Within those corporations you think of there’s limited liability company, so LLC, S corporation, C corporation, all these different iterations, you could have a partnership. And the intent with those is government wants to know who’s operating those and what else? When you are submitting, what actually is it, what are you submitting and how do you do it? What does it look like to actually submit it? And I know it’s still early, we’re figuring that out.

Danielle Liss: It is. So they just opened this, the law went into effect I think the second, so this is very new. I have yet to submit one, and I will for my own businesses just so I can get a sense of what is there. But primarily they’re asking you for information on beneficial owners, and they want to know generally who the people are. And you will need to provide contact information.

And that’s I think the most important piece of it, is it’s going to be determining who are the beneficial owners besides just the people who are listed as whether it is likely for many people managers on the LLC. So it would definitely be your managers, as those who are owners of the business, and then potentially other owners. And they’ve created these specific definitions of who is considered a beneficial owner. So if you own or control, because control is also important, 25% or more of the ownership interests of the company, then you definitely need to report.

Then they also have this more vague category, which shocking, because it’s a government statute. So the way they define it, and I’m going to read this off my cheat sheet, is individual beneficial owners are defined as any individual who directly or indirectly exercises substantial control over the reporting company. And that’s kind of vague. So then they break that out into categories.

So you’ve got someone who serves as a senior officer of the reporting company, so that’s president, CFO, general counsel, CEO, COO, or any other officer, regardless of the particular title that you have given them. Or they have the authority to appoint or remove any senior officer or a majority of the reporting company’s board, if they have a board, if they direct, determine, or have substantial influence over important decisions made by the reporting company, or if they have any other form of substantial control over the reporting company.

So they’re pretty broad statements. So I think what’s going to be really important to consider is if you have people who are working with you in your company beyond just those who are listed on the corporate paperwork and those who may not have an officer title, are they someone who is reporting to you as an owner or do they have these responsibilities? And if they do, you are going to need to check in and say, okay, do they have enough responsibility that we should consider them a beneficial owner? If they do, then that’s when you want to make sure that they are being included on the reporting forms.

Bjork Ostrom: Got it. So you have the ownership piece is easy. So in our case, I own 50%, Lindsay owns 50%. Okay, so we’re going to be included on that. And that I would assume is one of the most important things for the Corporate Transparency Act, is knowing who owns the companies, not just who operates them, but even if you have partial ownership of them.

The second variable or the second field that people would be filling out is who has some level of operating control within it. So maybe in some companies you might have two people or one person who owns it completely, but then you have one, two, three people who are kind of the executives that run it. And it sounds like those people would also need to be included in this, even if they’re not owners. Government wants to know who are the people that are operating the day-to-day within these businesses. And then that’s where it’s a little bit gray as to who those people actually might be. Is that right?

Danielle Liss: I think that they are trying to make a somewhat more vague definition with the idea that it will be more broadly reported because I think they’d rather have more information than less information. And I think that if you’ve got questions on whether or not, if you’re looking at this, saying maybe this person has some control, but do they have enough to warrant this, that’s definitely have a conversation with your lawyer and say, “Here’s what this person’s role is, here’s what they’re doing, I’m on the fence as to whether or not they have enough control.” And remember, it’s direct or indirect. So it’s a broad definition. So do you need to include them? I think that this will be interesting also for fractional services, if you-

Bjork Ostrom: Yeah, that’s what I thought of. We have a fractional CFO, and that was the exact thought. I was like, do we include Pat on that?

Danielle Liss: And it may depend on do they truly have that title within your organization and what level of control do they have? Because I have folks who hire me as a fractional general counsel, but on a day-to-day basis, I’m there so that I’m kind of the lawyer on call. It’s not necessarily because I am truly controlling or have any of the things that were listed. So I think in that regard, it will likely depend on what people are doing in addition to what is listed, especially if it’s not an employee. I think that that’s potentially an additional-

Bjork Ostrom: Filter.

Danielle Liss: Point of consideration.

Bjork Ostrom: So my guess is 70% of the people who are listening who have an LLC will just be putting themselves or maybe themselves and their spouse, they’ll have maybe some employees who help with the day-to-day. Maybe they have some contractors, but generally speaking it’s just going to be them. That’ll cover most of the people. A decent amount of people will then maybe also have some key team members who maybe would be included, maybe wouldn’t be. Would there be any downside to just including them, other than the fact that their information would then be in this database?

Danielle Liss: I think that the downside would potentially be if there’s changes, that’s when you need to make updates to it. But at that stage it may just be a simple, and I haven’t seen the form yet, it may be a very basic not here anymore type of check box, has someone replaced them and then you add that person. And if that’s the case, that’s not a super hard update to make. So I think that the likelihood is that we will start to see more questions come through, we’ll probably start to see more clarification.

This is always the way with every new law that goes out there. Every time we have a privacy update, it’s like we know generally what the rules are going to be, but we also need to see kind of how it plays out. So I think that’s going to be part of it. But if you aren’t sure, really you can consult the statute, and there are lots of resources on online as to who gets considered.

Now, where it gets trickiest is for any beneficial owner, you have to give name, date of birth, complete address, like where they are actually living. I don’t think we’re going to be able to do any post office boxes, things like that. But then you need to have some type of identifying number, which is typically going to be passport, driver’s license, some type of state ID. Now, you can also register, if they don’t want to provide the owner of the company with a copy of their driver’s license, which I’m thinking they probably would already have on file in a lot of cases for payroll and things like that, individuals can register with FinCEN, which they’ll allow you to create your profile and then you can say, this is my FinCEN ID, and they’ll accept that as well, which I think is-

Bjork Ostrom: As opposed to a passport or license.

Danielle Liss: Exactly. And that might be another way that it’s easy, where you can say to whoever the person is, “Okay, you go register here. Once you have done that, give me the ID that’s generated and then we can enter it in.”

Bjork Ostrom: Yeah, use that. And when do people need to do this? Is there a due date with it? And my guess is it’s different or it might be different with companies that have already been established versus new companies.

Danielle Liss: Of course it is. So for companies that were established last year, you have until January 1st, 2025 to get your reporting in. So they’re giving people a full year to get caught up. If you establish a new entity from January 1st, 2024, you have 90 days from the date of creation. So my thought on that is, again, view this as your checklist where you are going to say, okay, I’ve gotten my, let’s say you’re creating an LLC, I’ve gotten my articles of organization back from the state. I’m going to create my bank account and my EIN, and I’m also going to file my BOI reporting for Corporate Transparency Act.

So I think that just keep in mind that there’s going to be one additional thing that you’ve got to do along those steps. And then if you are after January 1st, 2025, which doesn’t that just sound like the future, like far, far away-

Bjork Ostrom: Flying cars.

Danielle Liss: That is within 30 days. So it is going to become a shorter time period for the reporting. But for now, new entities, 90 days, existing entities, you have until the end of the year.

Bjork Ostrom: Got it. And how do you actually do it? Can you do it all online? And then in our case, we’re just like, how do we get somebody else to do it? So is that something that you do and people could work with you to handle it, just so they know that a professional’s doing it?

Danielle Liss: Yes, I am working with people, and again, I work with primarily smaller businesses where it’s usually a very tight team, and that way it’s easy for us to determine everything. I think the key is going to be making sure that we’re able to track down all of the information and that we’re storing it securely. But you can absolutely, there are people that you can hire to do it or it may be something that you just look at and say, you know what, this doesn’t look too bad, I’m the only owner, so once I log in and do this thing, you’re good to go.

Bjork Ostrom: Pretty easy. And it sounds like at this point, we’re recording this on January 3rd, that it hasn’t opened up yet for people to do it, or-

Danielle Liss: I think it has. I think it opened yesterday. I just haven’t done any yet, so I can’t really give an impression. And I have a feeling that let’s just say, aren’t the first few days a little bit glitchy? So I would-

Bjork Ostrom: Like to let the dust settle on it.

Danielle Liss: Yeah. Let’s see what happens with it because government sites are always a little bit like never know what you’re going to get thing, but hopefully since this is new, it won’t feel like it was built in the nineties.

Bjork Ostrom: Yeah.

Danielle Liss: Or the 1900s, as my son would say.

Bjork Ostrom: That’s so awesome. So the basic idea is let’s say you’ve had an LLC or another type of corporation set up before January 1st, 2024, you’re in the US, you have until the end of the year to do this. So you have plenty of time. Let’s say you haven’t set anything up and you’re going to set that up this year, you have 90 days to do that. And then starting next year, if you set up any new entities, you’ll have 30 days. So you just kind of have to roll that in.

My guess is in situations where you’re working with a professional to set up your entity, they’ll just roll that in as a part of the process and that will just be now part of the ongoing updates that you get or documents that you get when you’re creating a new company.

Danielle Liss: Exactly.

Bjork Ostrom: Do you know if it’s something you need to re-up or renew every year or once you’ve done it, are you done unless there are changes?

Danielle Liss: So that’s primarily it. You have the ability to correct any inaccuracies, which if you find out there’s an inaccuracy, I strongly recommend you do because of the fact that we talked about those potential penalties that can come up for false information, or if something changes. So if there are changes to the BOI reporting, you’ve got 30 days to update those. And that can be things like a change of address, a change of a person, new person comes in and let’s say you’ve added a partner in your business, something like that, and they’re going to have an ownership piece, then that would come up. But if you have minority owners who are just, they made an investment, they’re not involved in the day-to-day-

Bjork Ostrom: Three percent, five percent.

Danielle Liss: Exactly, smaller, under 25%, they may not need to be included. So I think that’s important to remember, too, depending upon how much people are investing and what percentages they’re getting to keep in mind.

Bjork Ostrom: And how about for people who are privacy minded? You’re putting a lot of really not private information out there, like your driver’s license, your address, maybe a cell phone number. Where does that information go, and how public is it?

Danielle Liss: It’s a government database, which is primarily for law enforcement. So the FBI, other types of groups, I think it’s going to require very strict regulation as to who’s going to be able to access it. But this is not going to be like when you file something with a Secretary of State and it’s listed and there are records somewhere. So it is meant to be private. And I think that that’s a really good point, when you’ve got that level of detailed documentation, particularly because you have to do not just the number, you’ve got to have images as well. So I think that there is just a lot of personal information there.

Totally understand concerns, but it is not meant to be something that is going to be accessed by whomever. This isn’t going to be like we’re trying to track down everything that Mark Zuckerberg owns and has interest in. It is not meant to be something that is going to be easily accessed. Indeed, it’s going to be very limited access.

Bjork Ostrom: You had mentioned Secretary of State, but where you can go and look up information about an LLC and see who the manager is or address that they have listed or whatever. And I think for some people when they’re filling this out, they’re like, oh, shoot, is all this information public? But to your point, it’s not public. It’s actually just meant for I would assume different government divisions. Maybe it’s restricted to certain, like you said, FBI or some things like that in order to, it sounds like, help combat specifically money laundering type behavior. Is that the primary thing that they’re trying to address?

Danielle Liss: I think that what they are most looking at is a lot of times, my understanding is that when you are in the money laundering game, you create a lot of shell entities and make it extremely difficult to trace ownership so that people can determine who actually owns what in these companies. And that’s the goal, is to really look at those because they are not typically big companies. It might be something that there’s one manager, very hard to track down. Because there are states like Delaware, which is an extremely popular state for when people are forming businesses, they don’t require you to list who the managers are.

And in contrast, California has what’s required as a statement of information and that does become public on their website with particular owner information. So I think that because it varies from state to state as to at least who the owners are, that’s the goal. And particularly because a company can own another company, how many rows do you have to go down to see who actually does own the company at the end of whatever that trail is?

Bjork Ostrom: And this shortens the amount of the chain between companies and it makes it all more transparent, which is the name of the act, which is why they’re doing it. So that’s super helpful. Fills the picture out. Obviously going to be one of those things that’s a little bit ambiguous as you get into it, but will become more clear.

For anybody who wants to work with you, Danielle, and to say, I don’t want to figure this out, can you figure it out for me, whether it’s studying up a company, is that something that you will help bloggers, creators, publishers do? Or just to do this specifically, what’s the best way to get in contact with you and follow up with you to work together?

Danielle Liss: Sure. Usually it’s going to be just find my website, lisslegal.com, and then submit the contact form and we’ll reach out to schedule a time to talk.

Bjork Ostrom: Awesome. That’s great. Danielle, thanks so much. You’re a wealth of knowledge and information and have been through the years, so thanks for helping to fill out the picture on all things legal. Really appreciate it.

Danielle Liss: Thank you.

Emily Walker: Hey there, this is Emily. Thanks so much for listening to this episode of Tiny Bites. Just popping in to remind you to head to foodbloggerpro.com to read the show notes and get any more information and resource links that you might need. I hope you have a great week.