 welcome to Connecting Hawaii Business on ThinkTech Hawaii. My name is Kathleen Lee and I am your host for this program. Today, I am excited to have one of my friends back on the show to give us an update on the Corporate Transparency Act. We have Ryan K. Hughes, partner and business attorney, sorry, partner and business attorney for a few and more today. Ryan, welcome to the show I'm sorry, I think I'm losing my mind. Oh no, thank you for having me Kathleen and Aloha, but I also trip myself over my titles and phrases. What if it's the Wednesday afternoon? Yeah, sometimes it's a tongue twister. Yeah, thank you for having me. I have a fun update on what we talked about since last fall. I filed a couple of well, more than a couple of beneficial ownership information reports talked to clients and customers and I've done a couple of webinars and including yours. So I have a fun update that I think a lot of business owners who don't care for government regulation might enjoy. Very cool. Okay, let's go to your first slide. This is the gist of the update and then we'll go into a refresher as to what the Corporate Transparency Act is. Yeah, so the reason that the Genesis and the suggestion is like, oh, it's you know, first quarter is done. This new reporting requirement has had some legs and questions about what to do. But on March 1st of this year, a federal court judge in Alabama ruled that the Corporate Transparency Act is unconstitutional. Of course, whenever a court, even though we're here in Hawaii and it's a federal court in Alabama, you kind of dig a peek about what's going on and what does that mean for you? What do you have to do? You know, our founding fathers put together this crazy federalism system with states' rights versus Congress's Powered in the Act laws and then we have a federal court system as much as we have a state business registration system. So what does that all mean for us here in Hawaii? But that's the big news is that the Corporate Transparency Act is unconstitutional, at least in the eyes of this Alabama federal court judge. Okay, so let's go to the second slide just to give people a refresher of what you had talked about in November. What is the Corporate Transparency Act? Yeah, so good question. I was like, what is unconstitutional? What are we talking about? So originally, when we first did the first kind of update and that this is coming is the Corporate Transparency Act is basically a law that requires when you have a registered business entity, so an LLC, a corporation, certain types of partnerships, anything that here in Hawaii, you go to the business registration division and office to file and say, hey, I'm registering this business entity, you'd have to consider do I fall under the Corporate Transparency Act? And if so, there is a federal reporting requirement. We call that a beneficial ownership information report. That report, you file with the Financial Crimes Enforcement Network, FINSET. The whole ambit or the goal of this law was he's meant to combat money laundering that was a main focus or emphasis by forcing business owners who have a beneficial ownership interest in a company, a registered company, it would allow federal agencies to kind of investigate or determine and kind of combat money, primarily money laundering and financing of terrorism. So that's what the main goal of the law was. And the way it was done is, hey, you have to be a reporting company, so a registered business entity like an LLC corporation, and then that reporting company would list out all the beneficial owners. And I keep using that term beneficial owners, which is probably why some people got very confused or kind of hesitant. For privacy reasons is beneficial ownership doesn't mean you just own like shares in a corporation or membership interest in the LLC. The law kind of very made clear that control also was a factor to take into account. So and the reason is it kind of makes sense is they're really trying to figure out who holds interest or sway over this this LLC or corporation, who are the real owners. And again, it was a whole intent and purpose of this type of corporate transparency is accountability and figuring out where the, yeah, some extent, who owns this and who is benefiting from the money from this company because a lot of corporations and LLCs are used as shell companies and used for money laundering. So that's primarily the goal. That's kind of where we were at last fall kind of talking about, hey, you're going to have to file this beneficial ownership information report come January 1st, 2024. So long kind of recap, but that was kind of everything in a nutshell. Yeah, so the Corporate Transparency Act applies to most businesses. Did I get that right? Or because I know you said certain businesses. So like what are some type of businesses that it would apply to? So typically speaking, if you have to file articles of the corporation or articles of organization in this state, in other states use the phrase certificate of formation. But basically if you have to go to some type of business registration office, that's what we use here at the Department of Commerce and Consumer Affairs. But other states actually have a division of corporations or a Secretary of State. But basically the premise is, hey, you take paperwork, you have, you need to do this to form your entity. You're likely to be considered what's called a reporting company. There are exemptions. But usually those are exemptions are for much larger and already, that is banks, for example, they file things with Vincent regularly and consistently financial investment groups or financial advisor, they file routinely with Vincent. So they're exempt because they file other reports with this federal agency. It's your mom and pop LLC. It's your real estate investment operation that you kind of set up is that it's expanding the net of reporting. So yeah, there's very few exceptions, if you're going to be one of those types of companies that has to register its formation with a business registration. Okay. So according to the information that you provided, people or businesses that failed to comply may be subject to fines. But what you're updating us right now is that the CTA may be unconstitutional, but it seems like it's very specific. So let's go to that slide that talks about the unconstitutionality of it and why it only applies in certain cases. Right, right. So a lot of times people like here, oh, it's unconstitutional. Yay, we don't need to comply or we don't need to do anything without really understanding is, oh, no, no, this is the law and we have federalism and not to mention just because it's unconstitutional in one area does not mean the federal agency responsible has to follow it or it does not apply to other people. So what do I mean by that? Well, first of all, yeah, the Corporate Transparency Act has a number of fines and possible jail time for non-compliance. So, you know, what is somebody to do if you're a beneficial owner of a company that's registered, you know, and I've gotten pushed back. I've gotten, I was like, well, you know, this is federal overreach privacy. So some of them might be hard to hear it's unconstitutional. But anyway, for anybody else just wondering, well, what do I do? What does that mean for my compliance, for my LLC or for my corporation? First things first, um, things to know about this lawsuit, it was brought by an individual who is a member of the National Small Business United, I think Association or like NCBU, I think is the name. But basically this, you know, it's like a Chamber of Commerce business ownership of small businesses. But they brought the lawsuit. So the National Small Business United and I believe his name was Isaac Wiggles and they actually brought the suit about when we were recording this last time in November of 2022. And it's taken, right, so court process, slow, it's taken them as long. So the judge in this lawsuit basically said that Congress had overstepped its constitutional authority in creating this law, that they didn't have the power to create the law or fashion the law the way it was done. And so he declared it unconstitutional. However, some specifics, when you're only reading headlines, exactly like we've done is like, oh, it's unconstitutional. But when you get past the headlines, his ruling was very narrow. Basically, he all he created he enjoined Vincent from enforcing the law against the plaintiffs. That is, if you were a party to this lawsuit, Mr. Isaac Wiggles and the NCBU, the law does not apply. It's held on, it's basically held unconstitutional for now. Only for that particular group, only for that association. But for everyone else that is everybody outside of those plaintiffs, no, the CTA still holds full, full law force and effect. That is, it's kind of, and this is the part that people have a hard time is that he's basically only said is that Vincent, you can't enforce this law because I deem it unconstitutional against the people or parties to this lawsuit. For everybody else, you can do what you want. And yeah, so what happened is Vincent basically, in the subsequent days, so this was on March 1st, the ruling, I want to say like by March 10th or 11th, they have already put out a press release and a notice is that we take notice of the judge's ruling and we agree not to enforce it. And I'm so sorry. It's the National Small Business Association. I was getting, I see, I was getting tongue tied myself, but the National Small Business Association and Mr. Isaac Wiggles, but they basically reiterated, we're going to enforce this law against everybody else. So, you know, what is that leave everybody else and for practitioners, so lawyers, accountants and whatnot, that advising clients all this. Yeah, we're still recommending you comply with the law unless, unless, unless you intend to bring your own lawsuit against the federal government, which there are, I believe this has spawned several copycat lawsuits. So copycat lawsuits are when you kind of see that a ruling happened in another jurisdiction, so Alabama, and then basically copy and repeat that in your own jurisdiction. So according to your fifth slide, you mentioned that a business can't join the NSBA after the exception to the law. Okay, delve into that. This is why I love working with business owners and entrepreneurs. They're very creative in their approaches like, oh, okay, I'll just buy membership in that. Vincent was very clear you had to be a party of a lawsuit at the time. You had to be as, and I believe the NSBA has a roster of the membership to that you have, you know, you're basically plaintiffs that you can't be all like, yeah, you did all the heavy lifting, you brought this lawsuit, you got, you got a verdict that this law is unconstitutional, and then be on the sidelines and join in after, yeah. So it only applies to Mr. Isaac Winkles and the NSBA of members at the time of the lawsuit was filed. So then the determination then of people, because it seems like it's Mr. Winkles and the organization, NSBA. So what would, like, it would have to be, the owners would have to be on the organization to figure out who came in before and after the lawsuit, that's kind of what I'm getting, or that's the gist of this? Yeah, no, it's, it's pretty clear that Vincent will not enforce this against the NSBA members at the time of the lawsuit, Mr. Isaac Winkles. And so if, if you bought a membership, let's say, like on, on March 2nd, yeah, you wouldn't, he wouldn't apply to you, you would still have to comply with the CTA. So what I'm, what I'm getting at is you can't, you can't buy into the unconstitutionality exception as a, as a member of the NSBA. Okay, so let's go to your sixth slide. I love how you have frequently asked questions, can businesses wait this out? Because having worked, what is it, 14 years now, and like I said, occupying that entrepreneur kind of space or startups and small businesses, like I said, they're always very creative, but they always ask a lot of questions. And so some people are thinking, can I wait this out? I would say anybody who has filed or registered their business before January 1st, 2024 can probably wait part of this year. But the reality is, is the compliance date for those fines and the jail jailable time, your, your deadline is January 1st, 2025. So any pre existing already registered corporation or LLC before January 1st of this year, you have to January 1st of 2025 to file your beneficial ownership information report. The issue of you waiting and hoping that this remains unconstitutional, there's no guarantee of that and FinCen has already filed an appeal. They probably, they may even ask to the for the judge in this case to stay there ruling, which means the NSBA members and Mr. Isaac Wickels are back on the chopping block to comply if the court grants a stay in the, the enjoyment basically saying, Hey, you can enforce it. So there's that. But as this works it way through the appeals process. And again, it's, it is questioning Congressional Authority constitutional authority, the likelihood that this could go up to the Supreme Court as it works its way through the system and as other people file copycat lawsuits. And you may have a situation where one jurisdiction files it, it is constitutional. And then you have this federal Alabama one, which I would note was a summary judgment. There was no full trial the judge basically read, read the complaint and memo and basically issued a summary judgment, which is for something on this is usually you want to have a trial so that you can have evidence and whatnot. But that's why I've told people there's no guarantee this will remain unconstitutional. And you don't really want to do a coin flip, even if the Supreme Court might be a little bit more conservative. There's times this, even this Supreme Court has held up federal authority, especially congressional authority and power. So I'm not saying one way or another. But also, the fun thing about this Alabama courts ruling is the judge tells Congress exactly how to amend or fix the law to then make it constitutional. So there's an opportunity for that as well. So I think the bottom line here to gather is that if you're hoping for a quick fix and like, Oh, I'm going to just wait this out. You can probably wait a little bit. But yeah, if you're hoping the Supreme Court will weigh in on this this year, no, the term is done and you're not going to get. So the reality is you're kind of forced to comply with this. Anyway, if you're not part of the federal lawsuit or again filing your own federal lawsuit. I see. And I was focusing on pre existing companies. It's different about newly formed companies. So if you're thinking of registering in LLC or corporation this year, the rule is different. That's your snippet slide, right? You're talking about new companies now that are filing after this has been initiated. Yeah. So the rule or the law is for newly formed companies that are registered this year in 2024, you have 90 days to file your beneficial ownership information. So again, the whole waiting thing is, yeah, you're not going to get a Supreme Court ruling in the next 90 days. So if you need to start a new business or your online venture, or you have a new business partner and you're forming a new LLC or corporation, or you know, again, if you're registering a new company this year, you have 90 days to file your BoIR that is part of the compliance. And if you're just hoping day by day. Yeah, the federal lawsuit, the federal appeals process, and then if it does go to the Supreme Court, those are always years in the making. That is not like, oh, month to month of a day to day process that is years. And so again, waiting is probably not ideal for compliance. The thing is, is if you'd like to comply and not be held in non-compliance, it's probably better to file as soon as possible rather than weed it out. So unfortunately, for some people, here unconstitutional doesn't mean pause. Yeah, it doesn't mean a pause. Okay, so what is a BoIR? So this is a recap. And if anybody's tuning in for the first time on this subject is that beneficial ownership information report comprises of three components, and there's the reporting company. So you have to basically report about that's the company itself, that's the LLC itself, that's the corporation itself. And basically, you just need that set of requirements on the slide to kind of identify first which of the reporting companies. This is really important for people who are serial entrepreneurs or people on multiple businesses, because you have to do this for each company that's registered. So that's the gist of it for the reporting company part. So moving on down, this is a key critical difference for those newer companies on I think that slide nine slide eight about a company applicant. So if you're using legal zoom, you're using your attorney or your accountant, or you're using some type of service provider, other than yourself, you have to identify the company applicant. So that's within those 90 days I said, so if you're forming a new business company, the individual who is filing becomes a part of the BOIR. So they need their information. And one of the key things of why privacy advocates or privacy people had a concern is you have to have a photo copy of an identifying document. So most people that I've worked with that filed these, they provide me their Hawaii driver's license or their US passport. So we upload a color copy along with the BOIR because that's a part of the requirement. So that all gets uploaded. So that's kind of why there's this privacy federal government kind of tension and issue amongst business owners. But again, I'm talking about the company applicant, the person who filed those articles of organization or articles of incorporation on your company's behalf. Yeah, so this is the second component if they if you're a newly registered company. So jumping down, now we get to the most important part. Who are the beneficial owners of the reporting company? So you need your full label name, your date of birth, a complete current residential address. And again, that identifying documentation. So from most people, that's going to be your US passport or state driver's license. For Native Americans, sometimes they have tribal ID and things like that. So you can use that as well. But for most people, they kind of default to what's what's readily accessible or easel, which is their passport or driver's license. And again, this has to be done for each beneficial owner, and you have to identify them by their control over the company. So for those very complex LLCs or complex corporations that maybe you have 100 shareholders or something like that, or you're like a 40% law partnership firm, you're going to have to figure out who needs to get this and somebody's going to need to put this together and kind of send this all in for the company's beneficial ownership information. But so real quick, and if I missed it, my apologies, is there a form like a specific form that business owners can download? So great, great question. There's two main routes. There's a fillable PDF version that you can and you can get that from FinCEN. The other is to log on to FinCEN and do an online report. And you just kind of fill it. It's also just fill out the prompts and then attach that image, you know, the identifying document and it's hit sent. What happens is that you get a transcript for your records to keep that you actually filed and hold on to. As I said, there's a number of services. For instance, me as an attorney, but there are other online services that will help process and kind of do these reports. Just the same as kind of your annual reports or your other reports that you do for your company. Yeah, sometimes it's easier for somebody else to process and handle. But if you want to do it yourself, there's no need to use an attorney and not to mention these BOIRs are free to file. There's no filing fee for them. You can go to FinCEN and then file those online or download the PDF. Okay. And talk about the FinCEN ID. Yeah. So I have a number of clients who own multiple companies, whether they're real estate investor types of, hey, I have an LLC or corporation for each property or serial entrepreneurs of I have this online store, but I have this design center and that like, so I, they open multiple LLCs, multiple corporations, or they do the whole like I have a parent corporation with subsidiary LLCs. So their question is, do I have to keep uploading my image and do I have to keep repeating this? And the answer is no. FinCEN has created a way for you to apply for a FinCEN identifier number. It is an identifier number issued to you, which instead of submitting all that information that we talked about for the beneficial owner, you just provide that because it's already connected. You just do that once and it's connected to you. And so you can therefore use it for multiple reporting companies over and over again. They have even made it for situations where you have like very complex hierarchies of business entities that certain companies can also get a FinCEN identifier because you're just repeating that information. That is, if you have a corporation that owns an LLC, that owns an LLC, it's like, do I have to keep doing this for each company? So sometimes what I've done is kind of map out the relationship of the business entities. So FinCEN identifies a huge time saver for people who own multiple business entities. Okay, good to know. In the minute that we have left, Ryan, is there anything else that you would like to add about the Corporate Transparency Act? I think you can adopt the wait and see just to see the narrative that goes around this, but I don't think for right now for where we're at that non-compliance is, well, as an attorney, that's never an option. It's our recommendation always is, yeah, comply unless you're going to start your own federal lawsuit and kind of litigation, which as I said, some people have already contemplated, they have kind of a roadmap. But again, in terms of the eyes of the government, the federal agency, yeah, they're going to enforce the law. So that's kind of what you have to weigh and consider for yourself and your business entities. Okay, well, Ryan, thank you very much for that update on the Corporate Transparency Act. We just had Ryan K Hu, partner and business attorney with Hu and Bordenay. Thank you for being on the show today. And thank you to Think Tech Hawaii as well for making shows like this possible. Thanks to Jay, Carol, Haley and Mike. Until next time, aloha. of the transition and the development of our legacy archive program, please make a donation on thinktechaway.com. Thanks so much. Aloha.