Navigating the Corporate Transparency Act: A Comprehensive Overview

By Attorney Curtis A. Edwards


As we usher in a new year on January 1, 2024, the Federal government will also be ushering in the era of the Corporate Transparency Act (CTA), which creates new reporting obligations for businesses operating in the United States. Designed to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities, the CTA mandates that most entities disclose their beneficial ownership information (BOI). This blog delves into the key aspects of the CTA, shedding light on its reporting requirements, compliance and implications for businesses.

Who Does the CTA Apply To?

The CTA applies to a broad spectrum of entities, including U.S. businesses formed by filing with a Secretary of State (Department of Financial Institution in Wisconsin), including most small family businesses, LLCs, corporations, and even entities designed to hold real estate and conduct no other business. Foreign entities registering to do business in the U.S., and certain excluded entities, such as highly regulated entities, public companies, and government authorities also fall under the purview of the CTA. While there are some exemptions, such as for churches, charities, and other nonprofit organizations, it’s crucial for business owners to assess their classification and compliance requirements.

Understanding Beneficial Ownership:

One of the core elements of the CTA is the obligation for reporting companies to disclose information about their beneficial owners. A beneficial owner, in this context, is an individual who owns or controls at least 25% of the reporting company or exercises substantial control over its operations (which might include any individual employed as an officer, director, manager, chief financial officer or investment trustee).

Reporting Requirements:

Reporting companies are required to furnish comprehensive information, including legal and trade names, corporate address, jurisdiction of formation, TIN or EIN, and details about beneficial owners and company applicants. Beneficial owners must be identified either through a FinCEN identifier or by providing their legal name, date of birth, address, and a unique identifying number and photograph from a current passport or a state or government issued document, such as a driver’s license.

Company Applicants:

Entities formed after January 1, 2024, must disclose information about their company applicants – individuals responsible for forming the entity or directing the filing process. If your entity is being formed by a law firm, this will generally be the paralegal or staff member that files the document and the attorney who is primarily responsible for directing or controlling the filing.

Compliance Deadlines:

Domestic reporting companies face varying deadlines depending on their formation date, with the initial reports due by January 1, 2025 for entities formed before January 1, 2024, or within 30 calendar days of formation for entities formed on or after January 1, 2024. Foreign reporting companies follow a similar timeline, aligning with the date of registration or public notice.

Updates and Corrections:

To ensure accuracy, reporting companies must promptly update any changes to previously reported information within 30 days. The CTA provides a safe harbor for filing corrected reports within 90 days of discovering inaccuracies.

Penalties for Non-Compliance:

The CTA imposes substantial penalties for reporting violations, including civil and criminal penalties of up to $500 per day for ongoing violations and fines of up to $10,000 with a maximum imprisonment of 2 years for willful non-compliance. Businesses are urged to understand and adhere to the new reporting requirements to avoid any negative legal consequences.

Seek Professional Guidance

In conclusion, compliance with the Corporate Transparency Act is complex and nuanced, with each businesses circumstances and ownership structure being unique and requiring a comprehensive analysis. Early awareness, proactive planning, and collaboration with a knowledgeable attorney can help businesses not only ensure compliance now but also establish the necessary protocols to stay in compliance in the future. If you have any questions or are interested in learning more about this topic, please contact Lin Law LLC at (920) 393-1190.

Maintaining limited liability under Wisconsin law

This article by Lin Law LLC’s Attorney Emily E. Ames was featured in the August 3, 2020 issue of The Business News.

One of the primary reasons that businesses choose to organize as a separate legal entity, in the form of either a business corporation or limited liability company (LLC), is so that their shareholders, directors, and officers are shielded from personal liability for claims against the business. This concept is often referred to as “limited liability” or the “corporate veil.”

The veil, however, it not absolute. Under certain circumstances, the corporate veil may be pierced, or disregarded, by a court in order to hold the corporation’s shareholders, directors, or officers (or, in the case of an LLC, its members or managers) personally liable for claims against the business. This can include liability for unsatisfied debts and contractual claims.

The primary test for piercing the veil is the “alter ego” doctrine. This refers to a situation where an individual shareholder, director, or officer has essentially utilized the corporate entity as his or her alter ego. Unlike that of a comic book superhero, however, this alter ego is used not for good, but personal gain.

Under Wisconsin law, invoking the alter-ego doctrine in order to pierce the corporate veil requires a plaintiff to meet all three of the following elements:

1.     The individual shareholder, director, or officer controlled the business with respect to a particular transaction, such that the corporation had no separate mind, will, or existence of its own

2.     The individual shareholder, director, or officer used his or her control of the business to commit a fraud or wrong, to violation a statutory or other legal duty, or to act dishonestly or unjustly; and

3.     There was a causal connection between the first two elements and the plaintiff’s injury.

In other words, a court will pierce the corporate veil and hold an individual shareholder, director, or officer personally liable where he or she inappropriately utilized the corporate entity for his or her own personal gain, whether monetary or otherwise.

In evaluating the first element, courts will consider whether corporate formalities have been observed. These includes holding regular corporate meetings, maintaining all necessary corporate records, and segregating corporate assets from those of its shareholders. The second element often considers whether the corporate entity was adequately funded at inception or when a particular transaction took place. Under-capitalization can serve as evidence that the entity was created solely for purposes of shielding the shareholders’ personal assets. Finally, the first two elements must have actually caused or contributed to the plaintiff’s injury.

It’s important to note that piercing the veil is generally unnecessary to hold individual shareholders, directors, and officers personally liable for their own tortious conduct, even if the conduct was committed in the scope of the individual’s employment. The corporate veil may also be disregarded where the corporation has violated consumer protection laws promulgated by the Wisconsin Department of Agriculture, Trade and Consumer Protection, or in situations where piercing the veil is supported by a compelling public policy rationale.

So how does a closely-held corporation or single-member LLC maintain the limited liability? The primary line of defense is maintaining appropriate corporate formalities. For a business corporation, this means holding annual meetings and preparing minutes. At a minimum, the annual minutes should document the election of officers and directors and ratify any significant actions taken on the corporation’s behalf. An LLC must maintain its own bank accounts and records, and its members should ensure to conduct business only in the name of the LLC. While annual meetings are not statutorily required, significant transactions should be approved by the members in writing.

Limited liability is one of the primary benefits afforded to businesses incorporated or organized under Wisconsin law, but only if it is respected and maintained accordingly.

CARES Act Authorizes $349 Billion in Forgivable Small Business Loans

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), authorizing the United States Small Business Administration (the “SBA”) to issue up to $349 billion in forgivable loans to eligible small businesses through June 30, 2020. SBA §7(a)-approved lenders will be begin processing loan applications as soon as April 3, 2020.

Under Section 1102 of the CARES Act, the “Paycheck Protection Program,” employers with five hundred (500) or fewer employees can borrow up to an amount equal to 2.5 times the employer’s average monthly payroll expense or $10 million, whichever is less. The Paycheck Protection Program waives a number of the requirements that are typically applicable to SBA loans, caps interest rates at four percent (4%), and provides for complete payment deferment (including payment of principal, interest and fees) for not less than six (6) months and not more than one (1) year.

Section 1106 of the CARES Act provides that the principal balance of a loan obtained under the Paycheck Protection Program is forgivable in full, provided that the loan is used to pay for business continuity expenses, including: payroll (wages, health insurance, sick leave, retirement, and other benefits), mortgage interest expenses, rent expenses, and utility expenses. However, the total amount of the principal balance that is forgiven will be reduced if an employer lays off employees who are not subsequently rehired or reduces compensation to employees by more than twenty-five percent (25%) during the covered period (March 1, 2020, through June 30, 2020).

The SBA recently updated its website to include information regarding Paycheck Protection Program loans, including a sample application form.

If you have any questions regarding this topic, please contact Lin Law LLC at (920) 393-1190.

The Business News publishes guest legal column by Lin Law LLC

The following article by Lin Law LLC’s Attorney Emily E. Ames was published in the March 30, 2020 issue of The Business News as Now is good time to review succession plan.


Preparing During a Pandemic: Does Your Business Have a Succession Plan?

In the midst of a global pandemic and the corresponding uncertainty regarding the future, now is a good time to review your business’ succession plan (if you have one) or to start putting one in place (if you do not). Unsure whether you have a business succession plan? Two basic but important questions for business owners to consider are: “what will happen to my business when I’m ready to retire?” and “what will happen to my business if I die unexpectedly?” If you do not have a good answer to one or both of these questions, it’s time to do some work.

At a minimum, it is important to ensure that your business has all the necessary documentation in place. For a limited liability company, this will primarily consist of a comprehensive Operating Agreement, and should also include consent resolutions executed by the members, which document important transactions and business decisions. For a corporation, this means up-to-date Bylaws, accurate and regularly-maintained corporate minutes, and a Shareholders’ Agreement or other similar Buy-Sell Agreement. The business should, ideally, have an Employment Agreement in place for all key employees.

There are also practical considerations to keep in mind. Does someone other than you have the log-in information for all hardware and important software? Does someone other than you have access to the information necessary to maintain essential business operations? If the answer to either of these questions is “no,” begin documenting these items as soon as possible.

Another issue to consider is whether you intend to pass the business on to an employee or business partner, or whether you would prefer to sell it to a third party. If the former, it is important to begin identifying potential successors and training them as soon as practicable. The sooner you start, the better. If the latter, consider how you will go about identifying an appropriate buyer and what you can do to make the business more marketable. In both cases, it’s important to understand what your business is realistically worth.

Keep in mind the interplay between your business succession plan and your estate plan, and ensure that the two are coordinated. Ideally, your Operating Agreement or Shareholders’/Buy-Sell Agreement will specify what happens to your ownership interest upon your death. These documents will frequently grant a right of first refusal for the corporate entity or other owners to purchase your ownership interest. If this is the goal, it’s important to have life insurance in place that will prevent any liquidity issues in the event the corporate entity wishes to exercise that option. However, if none of the other owners or the company are willing or able to exercise such option, your ownership interest will generally be distributed in accordance with the terms of your Will or Revocable Trust, if you have one, or the default laws of inheritance, if you don’t.

These issues are just a starting point, but they illustrate the importance of having an official business succession plan in place. While having no official succession plan for your business is still a plan, it’s not a very good one.

If you have any questions regarding this topic, please contact Lin Law LLC at (920) 393-1190.

Expanded Leave Under the Families First Coronavirus Response Act

On March 18, 2020, President Trump signed into law House Resolution 6201, the Families First Coronavirus Response Act (the “Act”). The Act, which is applicable to employers with five hundred (500) or fewer employees, provides expanded paid and unpaid leave to employees in response to the ongoing COVID-19 pandemic.

Emergency Family and Medical Leave Expansion Act

Division C of the Act, subtitled the “Emergency Family and Medical Leave Expansion Act”, uses the existing Family and Medical Leave Act (FMLA) as a framework to provide eligible employees with the right to take up to twelve (12) weeks of job-protected leave. Eligible employees are those who have worked for the employer for at least thirty (30) calendar days and who are unable to work because they must care for their minor child due to the child’s school or care provider being closed or unavailable.

While the first ten (10) days of required leave may be unpaid, employers must provide up to ten (10) weeks of paid leave once the unpaid leave has been utilized by an employee. The required rate of pay is two-thirds (2/3) of the employee’s regular rate of pay, multiplied by the number of hours the employee would otherwise be scheduled to work, up to $200 per day or $10,000 in the aggregate.

Emergency Paid Sick Leave Act

Division E of the Act, subtitled the “Emergency Paid Sick Leave Act,” requires employers to provide up to eighty (80) hours of paid sick leave to eligible employees, regardless of how long the employee has been employed by the employer. Employees are eligible for paid sick leave under Division E if they are unable to work for any of the following reasons:

  • The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
  • The employee is caring for an individual who is subject to an order to quarantine or isolate by a public order or self-quarantine as advised by a health care provider;
  • The employee is caring for the employee’s child if the school or place of care for such child has been closed, or if the child care provider of such child is unavailable due to COVID-19 precautions; or
  • The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Employees exercising sick leave must be paid at their regular pay rate or at the federal, state or local minimum wage, whichever is greater, not to exceed $511 per day or $5,110 in the aggregate. Employees who take paid sick leave to care for another individual or child are entitled pay of two-thirds (2/3) their regular rate. In these circumstances, the paid sick leave rate may not exceed $200 per day or $2,000 in the aggregate.

Available Tax Credits for Employers 

To help offset the burden to employers, the Act provides a refundable payroll tax credit for one hundred percent (100%) of qualified emergency leave wages (as provided by Division C) and qualified paid sick leave wages (as provided by Division E) paid by an employer through the end of 2020. The allowable credit amount for any calendar quarter cannot exceed the total employer payroll tax obligations on all wages for all employees.  However, if the amount of the credit that would otherwise be allowed is so limited, the amount of the limitation is refundable to the employer.

If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.

Misclassification of Employees as Independent Contractors

Misclassification of Employees as Independent Contractors
By Attorney Nicholas J. Vlies of Lin.Liebmann LLC

On July 15, 2015, David Weil, the Wage and Hour Division Administrator, issued Administrator’s Interpretation (“AI”) No. 2015-1, which clarified the Department of Labor’s position on independent contractors. While the AI is not binding, the AI should be considered by companies that use independent contractors.

As noted in the AI, the FLSA defines an “employee” as “any individual employed by an employer” and the definition of “employ” includes “to suffer or permit to work.” 29 U.S.C. 203(d), (g). The AI argues that the “suffer or permit” definition was “specifically designed to ensure as broad of a scope of statutory coverage as possible.” Given the broad scope of the FLSA, the AI makes clear that “most workers are employees under the FLSA . . . .” To that end, the AI suggests that the economic realities test should be applied broadly in evaluating whether a worker is an employee or an independent contractor. Specifically, when applying the economic realities test “each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself . . . or is economically dependent on the employer . . . .” The AI emphasizes that the factors should not be applied mechanically and that no single factor is determinative, including the traditional “control” factor. The Wage and Hour Division’s interpretation on how to apply the economic realities test will, more times than not, result in a determination that a worker is an employee.

Given the above, employers should evaluate whether any workers should be classified as employees rather than independent contractors. Moreover, employers should be cognizant of the risks associated with misclassifying workers as independent contractors.

If you have any questions regarding AI No. 2015-1 feel free to call us at 920-393-1190.