Senator Carl Levin of Michigan recently introduced legislation in the Senate that, if passed into law, would dramatically impact state laws regarding the public disclosure of the names of owners of privately owned corporations and limited liability companies.

Under the proposed Act, each applicant in the formation of a corporation or LLC would be required to identify the individual owner who has the ability to control or manage the corporation or LLC. Further, if the individual exercises his control through the ownership of another entity (i.e., parent-subsidiary structure), that other entity would be likewise required to disclose their owners. Additionally, where the corporation or LLC has non-U.S. beneficial owners, an in-state formation agent must verify and certify the identity of these owners. All of this information would be required to be updated annually.

The significance and impact of this Incorporation Transparency and Law Enforcement Act cannot be underestimated. First, it gives the IRS another source of information to determine if there has been a change of ownership (and the related tax consequences). Additionally, creditors will have additional information to pursue the collection of a debt. Worse yet, in addition to state civil or criminal penalties, any person failing to provide the information is subject to a fine of up to $10,000 and imprisonment of up to 3 years, or both.

The Act has not been passed into law at this time, however, we will continue to monitor things as they progress. Look to future issues of the Commentator for updates.

For further information regarding these matters, please contact Mr. Goldberg at 248.740.5664 or click here to send an email.