VMM attorney Katherin Valdez-Lazo, an associate in the firm's Business and Transactional Law practice, was interviewed for an article in Long Island Business News (LIBN) explaining the new federal Corporate Transparency Act (CTA) and its implications for small and mid-size businesses.
The article can be found in the print edition today and online here and below.
The upcoming Corporate Transparency Act: What are the implications?
The upcoming effective date of the federal Corporate Transparency Act (CTA) will mean new obligations on small or mid-size businesses, mandating disclosure of ownership information to federal regulators, with significant implications for Long Island-based businesses.
The CTA, which aims to prevent or fight financial malfeasance by requiring the disclosure of beneficial ownership information (BOI), is expected to place some additional legal and administrative burdens on business and their corporate entities.
Businesses with $5 million or less in annual sales or gross receipts, or 20 or fewer employees, must fill out a form for each corporate entity–including Limited Liability Companies (LLCs)– identifying the names of all beneficial owners. The reporting deadline is Dec. 31, 2024.
The information will be used to create a complete, beneficial ownership database that law enforcement can access to uncover criminal activity or “dirty money.” Businesses must disclose the identities of people who, either directly or indirectly, own or control at least 25 percent of the business.
Most important is that any information identifying those owners–such as name or address changes–must be noted as these updates happen. While it may sound daunting, attorneys on Long Island have begun to walk clients through the process and reassure them.
“The obligations in terms of disclosure are not that much. It’s the fact that you have to do it, and you have to be updating all the time,” said Allan Cohen, Nixon Peabody’s Long Island managing partner.
Cohen, who is based at the firm’s Melville office, explained that, while the initial filings might seem straightforward, the need to constantly update the information when there are changes, such as in ownership or management, could lead to oversights. “The fines are stiff… $500 a day… that’s real money,” he added, noting that these penalties could be particularly burdensome for small businesses.
The act requires businesses, including corporations and LLCs, to report beneficial ownership information to a law enforcement arm of the U.S. Treasury Department, also known as FinCEN.
“Most of our clients do not understand why disclosure is necessary if they have never been subject to any criminal investigation,” remarked Katherin Valdez-Lazo, an associate for the law firm Vishnick McGovern Milizio in Lake Success.
Valdez-Lazo pointed out that the first purpose of many small businesses forming LLCs was to avoid disclosing personal information. “There is concern over providing personal information to FinCEN. The name ‘Financial Crimes Enforcement Network’ is off-putting to some clients.” she said.
For Long Island businesses, the CTA’s reporting requirements pose challenges. In industries such as real estate, where businesses form multiple LLCs for various projects, business owners must rethink how they structure their entities. Cohen emphasized that companies need to be more cautious when forming new LLCs.
“I always counsel clients not to just go about forming LLCs because they’re expensive to maintain,” Cohen said, adding that the additional administrative costs associated with complying with the CTA could outweigh the benefits for some businesses.
Valdez-Lazo noted that her firm reviews documents to determine what must be reported, highlighting the significant administrative burden many businesses face.
Long Island businesses are not only facing federal reporting requirements under the CTA but will also need to comply with the upcoming New York Transparency Act. According to Joseph Cuomo, a partner at Forchelli Deegan Terrana, and chair of the firm’s Corporate Department, these dual compliance obligations are noteworthy.
“We are now just starting to hear more regularly from clients with tiered or otherwise complex ownership structures,” Cuomo said. “For these clients, we often will have a conference call or calls with the CFO and/or outside accountants. We sometimes will need to look at the company ownership records, minute books and/or recent tax returns to understand entity ownership and subsidiary and affiliate relationships.”
Cuomo said the Uniondale-based firm has created a small working group of attorneys to begin reaching out to clients and providing them details.
The New York Transparency Act, effective in 2026, requires LLCs doing business in the state to annually report beneficial ownership to the Department of State. Unlike CTA, which mandates updates whenever ownership changes, New York’s law only requires annual filings.
Cohen noted that larger companies may be able to implement software to manage these filings, but smaller businesses will need to be vigilant. “Not every business has a compliance officer… so they may need to hire someone for that role,” he said.
And some attorneys are still hashing out with their clients if some entities are, in fact, required to file disclosures.
“Some unique challenges faced by local entities, is the fact that as part of their estate planning, their Trusts have ownership interests in the entities,” Valdez-Lazo said. “Since a Trust is not an individual, deciphering who the beneficial owner becomes tricky.”
Adding to the complexity is the CTA has created some concern about the potential to expose sensitive personal information.
“Some business owners do not want to disclose their personal information”– particularly since there have been some challenges to the act, Valdez-Lazo noted. She also emphasized that many businesses are wary of the risks associated with sharing personal data with the government, particularly with the increasing threat of cyberattacks.
Some are trying to also discuss the benefits of having an act in place for honest businesses that play by the rules.
“The CTA’s purpose is to reduce financial crimes by providing law enforcement with the information needed to target bad actors,” Cohen said.
