By: James A. Spella, Schloemer Law Firm, S.C.
Wisconsin businesses need to be aware of a new law that will affect them starting January 1, 2024, the Corporate Transparency Act. This law will affect all types of entities, including corporations, limited liability companies (LLCs), limited partnerships (LPs), etc. If you have questions on how this will affect your Wisconsin business, our Wisconsin business attorneys frequently assist entities in all of their corporate compliance matters and can help you and your business.
The Corporate Transparency Act: Background
The Corporate Transparency Act (CTA) is part of the Anti-Money Laundering Act of 2020. The 2020 Act is an effort to crack down on anonymous shell companies, money laundering, terrorism financing, and other illegal activities through the use of entity structuring.
FinCen (the Financial Crimes Enforcement Network), an agency of the U.S. Department of Treasury has issued its Final Rule which imposes reporting requirements on ‘reporting companies’. The Final Rule is effective January 1, 2024.
So, what does this have to do with a Wisconsin LLC or Wisconsin corporation that owns a rental property or runs a business? CTA created a mandate that ‘reporting companies’ must file an Initial Report, Updated Report, and Corrected Report.
If you own an LLC, Corporation, Limited Partnership, or will organize an LLC or a Corporation in the future, you are subject to CTA – unless your business is ‘inactive’ or you are a “Large Operating Company.
Information provided will be kept confidential by the BOSS, the “Beneficial Ownership Security System”. (Yes, you may wonder how secure BOSS will be with your confidential information.)
To understand how the CTA applies to your Wisconsin business, there are a few key definitions you should be aware of:
- “Reporting Company”: a corporation, LLC or similar entity created by filing a document with a secretary of state or formed under the laws of a foreign county registered to do business in the U.S.
- “Beneficial Owner”: any individual who directly or indirectly through a contract, arrangement, understanding, relationship, or otherwise exercises Substantial control over a Reporting Company or owns or controls not less than 25% of the ownership interest of the entity. Substantial Control could include directors or officers who can make decisions for the Reporting Company.
- “Company Applicant”: an individual who directly files a document that creates a Reporting Company or who first registers a foreign reporting company with a Secretary of State or similar office in the US.
Based on these definitions, it is my observation that if you own an entity organized by a filing with the Wisconsin Secretary of State’s office, you organized a Reporting Company, and therefore you may be the Company Applicant and Beneficial Owner and are subject to the reporting requirements.
The CTA does not apply to all Wisconsin businesses. The CTA is not applicable if an entity is dormant, or a “Large Operating Company” that:
- Employs more than 20 employees in the U.S
- Has filed in previous tax year federal income tax return reporting more than $5 Million in gross receipts or sale
- Has an operating presence at a physical office within the U.S.
If you are not dormant or a Large Operating Company, unfortunately you will need to read on.
CTA: The Initial Report
For Wisconsin businesses, there will different reporting deadlines based on when the entity was formed or organized.
- For Reporting Companies formed before January 1, 2024, the Initial Report is due January 1, 2025.
- For Reporting Companies formed on or after January 1, 2024, the Initial Report is due 30 days after creation
- An Updated Report 30 days after a change to the information previously provided in the Initial Report, or any previously updated Report.
Initial Report Observations
It is interesting to note that, for example, an Updated Report would be due if there was a change in beneficial ownership, or street address.
In addition, though Wisconsin’s online organization of an LLC or Corporation may be viewed as straightforward, the filing of the Initial Report adds to the matters which need to be attended to and not overlooked. In addition, when an entity is organized, the co-owners should always be addressing a written Operating Agreement for an LLC or Stock Restriction Agreement for a corporation. Under Wisconsin’s new LLC law, the organizers/owners of an LLC need to address the complexities (some would say flexibility) of Chapter 183 of the Wisconsin Statutes that requires to be addressed.
Contents of the Initial Report
The Initial Report will require businesses to submit a large amount of information to the government that was previously private information.
Specifically, businesses will be required to submit:
Reporting Company: As to the Reporting Company:
- Full legal name
- Any trade name or ‘doing business’ name
- Complete current street address
- State of organization
- Employer Identification Number or Taxpayer Identification Number
Beneficial Owner and Company Applicant:
As to the Beneficial Owners and Company Applicant
- Full legal name
- Date of birth
- Complete street address
- Unique Identifying Number from an acceptable identification document such as a passport or driver’s license (and the image of such document)
Note: For entities organized prior to January 1, 2024, it is not necessary to provide Company Applicant information.
CTA: Penalties for Non Compliance
Companies can face large penalties for failure to comply.
Companies who willfully providing false information of failing to report may face civil penalty of not more than $500 for each that the violation continues and fined not more than $10,000, imprisoned for not more than 2 years, or both.
The CTA imposes yet more government compliance requirements on businesses. Wisconsin based businesses should meet annually with a Wisconsin business law attorney to review changes to the law and how it affects their business. The law is constantly evolving, and businesses need a strong business attorney on their side to make sure that they stay in compliance. Failure to do so can have grave consequences for your business, from government fines and penalties to potential litigation exposure. We meet with business clients annually to review government compliance, contract matters, corporate governance, employment concerns, and potential litigation exposure.
We frequently represent individuals and businesses in all of their Wisconsin business law legal matters, focusing primarily on providing business, estate planning, and family law legal services in Wisconsin including Washington County, Ozaukee County, Dodge County, and Fond du Lac County and represent businesses in the communities of West Bend, Jackson, Slinger, Hartford, Kewaskum, Cedarburg, Grafton, Menomonee Falls and other surrounding communities. Our West Bend business attorney are experienced in handling all aspects of corporate law.
Originally published: April 14, 2023.
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Disclaimer: The information contained in this post is for general informational purposes only and is not legal advice. Due to the rapidly changing nature of law, Schloemer Law Firm makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your unique circumstances before deciding to take—or refrain from taking—any action. If you need legal guidance, please contact us at 262-334-3471 or [email protected].