Interview with David Weiss, Jenkins & Kling, P.C. – Everything You Need to Know About the Corporate Transparency Act

This episode is with special guest David Weiss, Corporate Attorney/Partner with Jenkins & Kling, P.C. 

David has represented small and medium-sized businesses, nonprofit corporations, and individuals for over 30 years in such areas as enterprise formation; governance and disputes; business succession planning; contract negotiation and enforcement; mergers and acquisitions; commercial transactions; real estate; homeowner and condominium association representation; and estate planning. David routinely represents clients in the boardroom and, after first-chairing over 60 trials, provides strategic guidance in litigation involving business disputes, shareholder and corporate governance matters, and homeowner and condominium disputes. 

Client industries include manufacturers and distributors, marketing and advertising agencies, restaurants and other B2C enterprises, architects, engineers and medical professionals, homeowner associations, real estate ventures, national and local professional organizations, and non-profit organizations. 

A firm believer in giving back to the community, Weiss has served in a variety of capacities, including currently serving on the Board of Trustees of his alma mater, Webster University, Christian Hospital Foundation, and the St. Louis County Parks Foundation. Weiss also has shared his legal knowledge through seminars, broadcasts and through his ever-popular eLawLines.com website.  

You can contact David at:  Email: dweiss@jenkinskling.com
Business Phone: (314) 721-2525
Mobile Phone: (314) 561-5078

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About Steven Denny: Steven Denny co-founded Innovative Business Advisors in 2018 and serves as a Managing Member of the firm. Steve has been actively engaged in M/A activities in a wide variety of industries for the last 14 years and has developed specific products to assist clients in growing their profitability and enterprise value. His specialty is working with established private companies in the lower middle market with annual revenues from $1 – 50 million. 
 

Transcript

0:02  
Welcome to the You Don't Know What You Don't Know podcast, by Innovative Business Advisors. Successful business owners who have started, grown and led businesses share their journey and direction for the benefit of those traveling the same path. Well, welcome everybody to the You Don't Know What You Don't Know podcast. We are honored today to have David Weiss with us. David is a business attorney and he's represented small and medium sized businesses, nonprofits and individuals for more than 30 years, and he practices in such areas as enterprise formation, governance and disputes, business secession planning, contract negotiation enforcement, mergers and acquisitions, commercial transactions, real estate, homeowner and condo association and estate planning. David routinely represents clients in the boardroom, and after first chairing over 60 trials, he also provides strategic guidance and litigation involving business disputes, shareholder and corporate governance matters and homeowner and condominium disputes. Some of the people that he serves include manufacturers and distributors, marketing and ad agencies, restaurants and other B to C enterprises, architects, engineers, other medical professionals, homeowners associations, real estate ventures, national and local professional organizations and nonprofits. David's a firm believer in giving back to the community, and serves in a variety of capacities, including his current position on the board of trustees of his alma mater, Webster University, the Christian Hospital Foundation and the St Louis County Parks Foundation. He also shares his legal knowledge through seminars, broadcasts and through his ever popular eLawLines.com website. David, welcome and great to see you and great to have you with us today. Steven, it's great to be back with you. I enjoyed talking to you all the time, so thank you.

1:59  
We're excited about this. Listen, I asked you specifically if you'd come on and talk about the Corporate Transparency Act, because so few business owners really know what's going on here and understand what it's all about. And I know that, I know you've got a good deal of information to share, and I'm really excited that you agreed to come on and share share your knowledge with our audience. I thought you wanted me back on because you couldn't get enough of me and just-- Well-- it's just so much fun. It seems to, it seems to keep going on with the court cases, right? It's a wonderful, it's a wonderful piece of legislation. You know, it was, it's its birth was quite convoluted. It was actually passed as part of a, on January one of, I believe 2021. It was, yes, 2021 as part of the defense appropriation. So that's, that's, just imagine Congress there on January one. That's, that's the thing you got to wrap your head around, okay. Yeah. But the, what we're going to talk about today is something called the Corporate Transparency Act, and it is part of its amendment to the banking acts in the US. And the banking act's have been around for for a long, long time, but they really got beefed up and took taken more seriously after 911. And what they wanted to do is shut down the money flow for nefarious actors, everything from terrorists, traditional, what we think of, I guess, as Middle Eastern terrorist, domestic terrorism, Russian oligarchs and others that are on the bad people list, the naughty list, as Santa would call it, right about now. Yep. And, and the idea was, you know, most business people that have gone and opened accounts in the last, certainly 10 years, if not a little little longer, you go to the bank and and they're going to ask, well, I need to see your ID, Steven. I know who you are, but I still need to see your driver's license. And are you the only owner? And, you know, what percentage and all that. That's all part of of the Financial Crimes Enforcement Network and and what the what this Act was intended to do was to to push it down field a little bit. So it's not just the bankers that are trying to catch these, you know, bad persons, okay, but it's also allowing others that have interaction to find out, you know, if you've got a bad actor. So you could have someone that opens up an account, but the actual owners, all right, the members, not the manager, but the members of an LLC, are, you know.

4:57  
Two of the guys that were terrorists on 9/11 you know, you know who bombed the Murrah building down in Oklahoma, those kinds of individuals, as well as Russian oligarchs. So you could have a front person, but who's the people that that control the actual business itself and has the power to to make those decisions or owns 25% or more. And so they cast a pretty wide net. But having registered a good number of businesses over these last certainly six to eight months, if not a little longer, it's a relatively painless process. The first time you do it it's kind of daunting, but then you realize, oh okay, this is how you do it, and it moves pretty quickly. But the idea is to catch people that might be using the banking system to basically sanitize money that can then be used for other purposes that can harm the United States and its population. Now, this has been going along somewhat smoothly, as we discussed before we went on on the podcast. Really haven't heard a lot about it. And that's, you know, there's, I've heard a few PSAs, public service announcements, in the last month or so. I've heard, certainly from other account, not other, but accountants and other attorneys. They're pushing out the information, but it's not getting down to Main Street, and I think that's going to be the real problem. How do you, how do you get this out? Well, perhaps the one thing that may have made it more, you know, more people know about it was an injunction that was just issued on December 3 down in Texas, of all places. Can you imagine Texas and joining the federal government on something? But that's what indeed happened. So a Texas Court found that there was a likelihood or probability of success on the merits that would find the Corporate Transparency Act and its requirements under what's called the benefic-- Beneficial Ownership Information Report were unconstitutional. Now everybody says, well, then it's done. It's like, no. There's other courts that have found it was constitutional, but they didn't, they didn't issue an injunction because it was the law. They didn't need to stop anything. So when this Texas court decided it was time to, you know, shut it down, they issue a nationwide injunction, and there's standards for issuing that. Excuse me. There's standards for, you know, finding, if that's reasonable, because as part of our federal court system is you have these different circuits, and they allow different opinions to percolate up and and you have a real exchange of ideas and perspectives. But they've shut it down because they issued a nationwide injunction. 

8:07
I would have thought that either the 11th Circuit, is it the 11th or fifth circuit would have overturned it, if, if the, if the Department of Treasury wanted to pursue that. But I don't think they've appealed it, but I don't know that they've, they've taken any extraordinary action. Perhaps it just hasn't gotten any press. And to be honest with you, at this time of the year, it is pretty busy for a corporate attorney. I'm not looking to dig through and see what's going on in, you know, the docket entries on a case that I'm not involved with. But the situation is, right now everybody's got a pass, so now there's no reason that you'll have to tell your loved ones "I couldn't get you the birthday or the Christmas gift you want," or Hanukkah gift or whatnot, because you don't have to worry about applying for the Beneficial Ownership Information Report under the Corporate Transparency Act. So that's where we are, all right? Well, one thing we know for sure is it's in the courts, and this thing is not dead. It's just it is an injunction. So this thing-- It's an injunction. Right. Right. And an injunction is just the status quo. It just freezes the status quo. And in this case, it's the status quo immediately before they started implementing this. Now there's, there's been, actually some, one commentator said it only applies to companies that were in existence prior to January one of 2024 because their deadline for filing is December 31 of 2024. If you formed a new company in 2024 you have 90 days. So if you file, formed a company today, you'd have until, this is just rough but you'd have until March 16, approximately. I'm sorry, yes, you'd have until March 16. If you started a company on January 2, you'd have until February 2. You only have 30 days to file. So this is all the dates are all over the board right now, but everything's been shut down by the action of the Texas, United States District Court for the Eastern District of Texas so.

10:30  
Well, listen, let's, let me pull your slide deck up and let's go through it, and let's spend some time educating people on this, because it's, as you said, it's, it's, it's just a stay. So this is probably going to come back around. And I think there is a whole dearth of information out there. I've talked to very few business owners that are even aware of it. Okay. So I think this will be very, very helpful. Okay. There we are, money laundering. So that's what we just talked about. Yeah. --the dirty money. And we're trying to, what those those perpetrators were doing were they were sanitizing the money to make it clean so they could put it into the banking system. And that's what this Corporate Transparency Act is trying to do, shut down that pipeline. Yes, sir. Very noble, noble intent. Very noble intent. But, so how do they do this? So, so there's, they start with something called a defining a reporting company. And a reporting company is any company that that you create by filing paperwork in a Secretary of State's office, or a similar office, there in some jurisdictions other than Missouri, you might have to file with the the state banking Comptroller, or something of that nature, or insurance, Commissioner of Insurance. But a domestic reporting company is one that's created by filing this paperwork to make the entity. It could be the Secretary of State. That's usually, you know, where I would think 99% of the entities are created. Or it could also be an Indian tribe. And so, you know, if that's the case, you're a domestic reporting company. If you are a foreign reporting company, it is a similar process, but it was in some  
other country, whether it's Canada, Mexico, France, wherever, that you went to some office and you had to file the paperwork. Now, if you are a true partnership, which can be just a handshake or just a wink and a nod, but nothing is filed with the Secretary of State, you're not a domestic reporting company.  

12:57  
And so that comes into play with I'll tell you, the biggest area that I see day to day is for homeowners associations. If they never created a, a nonprofit, which is the general entity that's used for those, those subdivisions, if they didn't form a nonprofit, and they're just an association, they don't have to file because they're not part of it. But, you know, if you're a condominium association, almost all of those are going to be formed by an entity. They're newer than the subdivisions are so. Even a, even a commercial homeowners association, they might, you might have a, not a homeowners, but you might have an association governing a commercial property, and-- Absolutely. Yeah. Those will, those would also then apply into that scenario, right? Exactly, exactly. So if you have commercial condominiums, you're going to have an association. The fact that it's commercial makes no difference. Nonprofit status won't get you out of the reporting, okay? So let's take it, let's, let's keep going. Who's going to be affected? This is the big thing. It's, it's a very broad net. They said 32 and a half million. I've actually seen numbers of in excess of 34 million now are affected by this. And you know, so it's, it's very large. There are a good number of filings that have already occurred, but nowhere near at 11 and a half months into this year, there's nowhere near 11 and a half 12ths of all these companies have filed. So there's a lot that's still in the wings. And, and going forward, it's going to be they estimate 5 million new registrations each year. The good news is it's not like filing the Annual Registration report for corporations where every year you have to do it, or every two years, if you elect the Biennial. It is a one and done until there's a change. And we'll get into what changes trigger that in a few minutes so. But a sole proprietorship would not be affected by this. A sole proprietor is is not affected because they never filed anything. Yeah, it's all, it's all on their 1040, right? It's all on their 1040, exactly. All right. So a domestic reporting company is, as I said, they filed something with the Secretary of State or an Indian tribe or some comparable office. And a foreign is, is, domestic, I'm sorry, a foreign reporting company is a business, is, is formed under a non US jurisdiction required to do business with the Secretary of State's office, or a comparable Indian tribe. 

15:57  
I, I can't think of one company in all my years of practicing that I've had, well, I've represented foreign entities, but never Indian tribes. All right? The, this will encompass not just corporations and LLCs, but also limited partnerships, some, some states have limited liability, limited partnerships and limited liability, limited corporations and other entities. Delaware has the business trust, all right, and so there's entities that are going to be, you know, caught or subject to this law. But for those of us in Missouri and Illinois, the main emphasis is going to be on corporations and LLCs and to some extent, limited partnerships. But to be honest, I don't see many of those anymore now, either, new ones anyway. So who's exempt? So this is the big thing. So they cast this net, and it covers all businesses but not everybody's got to file, because some of them, it would be duplicative. What, what the government is trying to do, the Federal Government, they're trying to find out who is behind these businesses. So if you are a publicly traded company, if you are a bank or an insurance company, all of that ownership information and management information is already subjected to and through the Commissioners of Insurance, the Department of Comptroller's Office, Department of Treasury and whatnot, and so they're already getting through that. But there are a lot of other exemptions that are that are present and, and those include, you know the large, as I said, the large operating companies. If you're on a, on the New York Stock Exchange or some other publicly traded exchange, you're getting pretty fully vetted there. And, you know, the fact that you might own 300 shares of whether it's General Motor or video or whoever, that's not going to really change anything. You're not going to be able to, to move a whole lot of money through that, at least, that's what they think right now.

18:29  
But there's also tax exempt entities, and when I say tax exempt, let's be clear here. So you can file the paperwork to be a tax, I'm sorry, a nonprofit corporation here in Missouri, but that doesn't make you a tax exempt entity. That just means you're nonprofit, and there's certain rules that apply to you, but it has nothing to do with the tax law or what you report on. The type of entity is governed by the state, the tax status is governed by the federal government, all right, and to some extent, the state government, but generally they they're in tandem. So whatever happens federally, the states will follow. There might be few, few different little rules here and there, but not so much in Missouri. So, so a tax exempt organization is an organization that has 501c status. Now we all have heard of the c3, that's your charitable entities, but there's also quite common your fours and your sixes. Your four is going to be more for your scientific organizations, agricultural and whatnot, and your six are for your trade associations. Come to mind, chambers of commerce, all right? And so if you're any 501c organization, then then you're exempt from it. Now the question is, can I form an entity and you've got 27 months to get your exemption from the IRS. During that period, what do you do? Well, my recommendation is you file because until you have that determination, I don't think, I don't think you can go to bed knowing and have a good night's sleep knowing that you might not get that determination so, so that that's my that's my recommendation. Shall we go? Oh, before we go, homeowners associations and condo associations, many of them, not all, I see a few that are LLCs or even a regular for profit corporation. I don't know why, but that's what they are, and have been for years, and it works, I won't worry.

20:47  
But if you're, if you're one of these entities, you may again be a non profit entity, and that has certain benefits from a liability perspective here in Missouri and other facets that may attract you to it, but it doesn't make you a 501c anything. And so you're still subject to compliance with it. And I'll talk to you a little bit later about how that impacts those organizations. So there's also inactive entities and and this happens a lot. Think of it you know you or your parents or your sister or somebody, you know, they buy a, they buy a rental property, and somebody says you ought to put it in limited liability company. You do that, and you run it for eight years then you sell the property, and you never terminate the LLC, all right? Well, that LLC is still active, and you would have to file. Well, you may even have forgotten about it as a practical matter, so you kind of get a pass here, but you need to double check and make sure you do qualify. So it is for any entity that was in existence before January 1, 2020, which is the date that they passed the bill, by the way, not engaged in active business, not owned directly or indirectly by any foreign person, and has not experienced a change in ownership, or set to receive funds in an amount equal to or greater than $1,000 in the previous 12 months, and otherwise does not hold, hold any assets. So if you're LLC, a case in point, a family LLC, they took mom and dad's farm, you know, 2800 acres, and it's owned by the eight kids, and they've got this LLC for liability protection, but they don't trade any money. They each pay their 1/8 share for the taxes and for the insurance and whatnot. Does that qualify? No, because it owns an asset and so it would have to file. So let's, we'll go pretty quickly now. Any SEC reporting issuer, any government authority, so let's say a public private entity, like BiState Development Corporation, that would be exempt. Banks, credit unions, money service businesses, they're highly regulated. Insurance companies. Keep going. You know, people can read this. It's pretty, pretty easy. What's interesting is, accounting firms are exempted, but attorneys aren't. Well, you can tell who had the ears of legislators, okay. That's not one we take lightly, okay.

23:40  
I'm gonna tell you that, okay. Surprising, huh? Surprised all of us on the legal side, okay. Yeah. Yeah. But you can see, you know you can read, everybody can read this and and see, you know, what, what, what your exemptions are. There's 23 but I hit, hit upon the the bigger ones. So what if you're not exempted? Next slide. So, so if you're not exempted, then you have to comply with it and you file a Beneficial Ownership Information report. Well, what's a beneficial owner? Well, a beneficial owner is is anyone who either exercises substantial control over the entity, the reporting company, or owns or controls 25% of the ownership interest. So, so who is it that exercises control? Well, the President slash CEO exercises that control because they can fire anybody. Now, what about the president, CEO? Can they be fired? Sure, by the Board of Directors. So all of those individuals are, are, you know, beneficial owners. There's also the CFOs. They exercise substantial control in most businesses, and there may be some others. So if they have the power to to remove people, or decide what's going to be purchased and whatnot, they all come fall within the parameters of of exercise in substantial control, and they have a duty to file these reports. Also, what about the 25%? Well, if, Steven, if I have own 25% and you have an option upon my retirement, which will never happen, but upon if it were to happen, you have an option to buy that 25%. Do you have, are you a beneficial owner? Well, that's the question. If you have a warrant that's convertible, it is. Some of these options are. If you're just a transfer on death, on a stock certificate, I don't think you are. And so it gets a little, you really have to look at it, and it's not just a quick glance and say, Oh, well, I am or I am not, because there could be exceptions to the exceptions. One of the questions I've heard is LLCs you typically select, you're either manager or member driven, right? So a member, obviously, is somebody that owns the ownership of the LLC, a manager is somebody that's designated as as manager. Do managers then, are managers then required? Or is it just the members? No, it's also the the managers. Because it's much like a an officer of a corporation, whether you're a president, CEO CFO, that you would, you, you have the ability to affect the outcome, because in the case of an LLC, the members have designated the manager to run the company. Yeah. So that's why it's inclusive.

26:55  
So the ownership, the 25% ownership requirement is, of course, any present equitable interest, whether it's stock, a membership interest or some other instrument. A promissory note that's convertible into stock would be, any, any capital or profit interest, and those are created, if you've heard of shadow stock, all right, so--    
Or phantom shares? Huh? Phantom shares. Phantom shares. So, so if you have, if you basically are stair stepping with those that own the stock, then, then you're going to be subject to it. Now you got to have more than 25% and the question is, how do you compute the 25? Does your phantom shares dilute everybody else's? So if you have four shareholders that each own 25 but you got your your somebody else that is an advisor, and they get 25% of phantom stock. So if you include that, now they're all at 20% so, so, so, how do you do that? I don't know that we've got, you know, following the, you know, frequently asked questions. I haven't seen that answer. So I always think the safest thing to do is, is to file because many times it's not going to make a difference, because there's perhaps other companies where you're already disclosing that information on your behalf. There's convertible instruments, any put call, straddle, or other option or privileges, or any other type of contract or agreement. It could be a buy sell agreement, where, where an employee, you know, on a on a single member entity, whether it's an LLC or corporation, they may have an agreement with the their their key employee, that if something happens to the owner, then that person steps in and takes over the company. Well, that's, that's a that's a situation where I think you have to report so.

29:07  
The direct or indirect ownership would include undivided interests or ownership to another individual, but not in the case of minors. So if mom and dad own an interest on a minor, that doesn't create that situation and and if there's any intermediary entities. Now obviously, or maybe not so obviously, but you're not going to see a lot of that with a subchapter S corporation, because it has to be an individual that's owning it or if you're a qualified subchapter S entity, exempt are going to be from the definition of beneficial owner is minor children, a nominee or intermediary, an employee, or an individual holding a future interest. There are situations where there are qualified plans, and you could be by virtue of that, you could hold a position, that is exempted as well so. Company applicants. So the company applicant, right now, if you're, if you are an existing company as of 1/2/2024, you didn't need to fill this out. But for any new companies created on or after one 1/1/24, the company applicant, and there can only be two, which I find kind of, you know, constraining, but I'm thankful. So it's not broader, but it does create a confusion. Who are they? So it's the person that actually does the filing. So let's talk about that. So a client of mine calls me and says, I want form a, you know, I'm buying a new piece of property, I want an LLC. So I talked to my paralegal. I say, This is what-- or let's say I talked to my associate. I said, we need this, they go and they talk to the paralegal who actually files it. Who is the company applicant? The person who told me that they want a new entity to hold this real estate? Is it me, is it my associate, or is it the paralegal? Well, I think the, where I fall is it's the paralegal, and it's, and it's me, all right. Now some some other attorneys are saying, No, it's, it's the person who directed it at the at the entity level, and and I'm fine with that. But I always think, you know, I should be on it. I'm not gonna let a paralegal be hanging out there without me behind that, okay?

31:50  
But it's, it's the person who directly files the document. And one way around that is, is you just make sure the paralegal puts my name on it for returning it, versus their name, all right? And here you see in the second bullet, you know, the attorney at a law firm or partner and accounting firm, or other individual forming an entity to hold real estate that orders or directs the formation of a new corporation or LLC. So, okay? So you may also refer to the individual whoever's responsible for forming. Again, that's what I consider, the person who goes ahead and calls me and says, we need the new, new entity. And and I, you know, there's so much written about it, but they limit it to two. You can't even put in a third person. I tried it just as a test, and it won't take it. So that's my last bullet there's on this, this topic, there's one or two individuals will fall in the definition, senior official directing and the individual actually making the filing. You know, again, I'm going to take the, I'm going to take the hit if there is one as being the person who filed. So next, what do you have to do? What must you do? So, so there's actually,
there's two categories, general categories of information. It is, you need to identify the reporting company. So they're going to ask, where is your office? You can't use a PO box. You have to use a physical address. They don't care if it's your home. They just don't want a you know boxes are us kind of a situation. They want to know, if they have to go and knock on your door, they want to be knocking on a door not a mailbox. And and then the the individuals who exercise that control or own 25% or more of a company. So there's two parts to it, identifying the company. And they want things like, what's your state of organization or incorporation? What's your unique identifier number through the state? You know, that kind of basic information. And they're going to ask the same thing about the beneficial owners, alright. So, so, and here, it's just what I said, full name of the reporting company, any DBAs, any trade names, any fictitious names. You know what state, you know, where are you incorporated? And, and, you know, you, they they also want your IRS number, which is either a taxpayer identification number or a federal employer identification number. And there's special rules if you don't have either. Next please.

34:53  
The company applicant is is, as I said, the applicant is the person or persons who direct or actually perform the incorporation organization, and so their names, date of birth, and street address, which can be the business address, but if none, then their residential address. And something to uniquely identify them. Again, when we're talking about that, it's generally going to be a driver's license or a passport, but I guess there's nothing to prevent you from using your Department of Corrections photo ID if you're operating an enterprise from prison, okay. I don't know how you do it, but it's pretty open. You can also use a military ID, whatever, okay, just a photo. It cannot be expired. It's got to identify your name. So the beneficial owner, very similar, full legal name, date of birth, your current business address, or if none, if you don't have one, your residential address and a unique identifying number, a passport, again, unexpired passport, driver's license, or some other government issued ID. So the filing dates, and these are all out of whack now because of the injunction, which was issued, but absent the injunction, new entities that are formed in 2024 have 90 days to complete their filing requirement for existing entities. In other words, those existing prior to January one of 24 you have until the end of this year to file. And after the end of this year, after December 31 of 24 you have 30 days to file. Now the issue becomes, and we talked about this, that there is no, it's a one and done unless there's a change, or if there's a correction that has to be made. So if you have a driver's license here in Missouri, you decide, I'm going to move to Illinois, you're going to need to file a new, an amendment to your Beneficial Ownership Information report. I don't believe the license numbers change, certainly in Missouri. So if my number ends in 12340, and I renew my license and it's the same address and it's the same number. The fact that I got a new license is irrelevant, but if I were to move to a different address, if I got a different ID, and certainly with a passport, I think those numbers change every time you renew the passport. I haven't looked but I do think the passport numbers change, if memory serves me, right, and so you have 30 days to file that information. If you notice an error, you have 30 days from the date the error is found. Now, I don't know how they know what day you found the error, but it's 30 days, and your compliance is your compliance issue, all right. So, David, if you sell a business, which obviously is our our ball of wax, right, and you're the seller, does, it sounds to me like there's a responsibility on the seller to file a change notice and on the buyer to file if, if there's a new entity, or even if they assume responsibility for existing entity, the the buyer would also have a responsibility to, can you explain that for us, as you see? Yeah, and there's multiple aspects to that. So most companies, when you when you sell, are not selling the stock-- Correct, typically they're selling the assets, right. Yeah. 

39:06
Okay, so, so whether they have an existing company and they're acquiring these assets, or they form a new entity to take, basically an operating entity standalone, and put all those assets in there, if it's, if it's the latter, they create a new entity, then the buyer would have to form, file these new forms, and the seller would not have to do anything. But what happens, you know, regularly we have, so let's say the name of the company is USA Retrofitting, and the buyer is going to, or let's say it's Weiss's Retrofitting, and they're going to take it over, and they want Weiss Retrofitting as the name, because it's got great, you know, reputation. So they, so I will change the name of my company to something like a, uh, you know, old Weiss Retrofitting our Old Weiss's Company, and they'll, they'll form a new entity under some other name and a trade name of Weiss Retrofitting, all right. So, so they're still two, two separate companies, but I would have to change my registration because I have a new trade name. I change the name of my entity, and so you would have to go that way. But if you're acquiring assets, let's say you got somebody's going out of business, there's an auction, and you're buying all the kitchen equipment to add to your expanded restaurant empire. You don't need to do anything. There's nothing there, just buying assets. But if the entity is sold, the actual stock, and we have situations where that still occurs. There's obviously more risk with that, but sometimes you need to do it, because that's what you want, not the risk, but the benefits that came with it. And so, so you take that on and, and you're, you take that on and, and you do have to file an updated report. Now, what do you do in your, your documentation? You put a requirement that it be filed and that a copy be sent to you. The problem is the confirmation copies that Financial Crimes Enforcement Network, the entity that you actually file with, is indescript. I mean, it doesn't even say, it says you, "congratulations, you have filed." Like it doesn't say the name of the company. You don't know who it is. It drives me nuts. I can't send a confirmation to a client other than we did it. But this is all it says. It doesn't say the name of the company or who the beneficial owners were, so it is what it is so.

41:56  
It's a pretty stiff penalties, all right. It's a federal crime, failure to file or to file false reports, and you know, if you do that, they're going to come after you. If you go to the next page, it'll tell you, you know, what it is. Well, there's both civil and criminal. So from a civil penalty, it's, it's not more than $500 a day. Thank God you're so lenient, okay. If the violation continues, it may be fined not more than $10,000 or imprisoned for not more than two days, it's two years, I'm sorry. And so it's a pretty major hit. Now I can't believe that if somebody misses a report, let's say, you know you're, other than the fact that I'm a practicing lawyer, let's say I'm, I've been retired for eight years, and I've never heard of this act, and I didn't file from an LLC that I have a piece, a neighboring piece of property that I rent. All right, I don't think I'm going to get, you know, two years in a slammer. But, you know, somebody's going to get picked up on this once that injunction is lifted, and you're going to have a real compliance issue. But, I don't think there's-- There'll be some test cases out there. Will there will be some test, yeah, I mean, if I tried it there, they'd be looking at this and say "you knew about it." You are going to get the five hundred a day. All right, so, I think there's one more page, which is just a thank you, all right. And do you have any more questions, Steven? I do. I do. So, you know, we talked, you touched on this earlier, and I want to re emphasize it. If you're a new entity and you're opening a bank account, you know, I recently went through that, not in 2024 but in 2023 and it's, it's a lot of information that's required. Is it, is it pretty much the same information, David, that FinCEN requires having. I know you have experience actually filing these, I don't. Right. It's pretty much the same information. The difference is, you are filing, this is broader because you go to the bank and you file as a representative for the company. Right. They don't require that the President and CEO come, you could be the office manager and go and open that account, I believe. But with with the corporate Transparency Act, the disclosure of all those who are beneficial owners, and remember, the definition is not only those that own 25% or more of the interest in the company, including those attenuated items like, you know, ghost stock. Right. You know, or any of the options, puts calls-- Puts calls. Why not? But also those that exercise control, the Board of Directors or the Board of Managers in the case of an LLC. Our recommendation is those, each of those have to be identified, and so it becomes a bit of an issue.

45:21  
Let me go back to the nonprofit world, and especially the HOAs, homeowners or condominium associations, where there's regular change. What do you do in that situation? Now, if you're a 501c3, you're a charitable, you know, let's say you're the St Louis Art Museum, that's 501c3, they're exempt from filing. They don't have to worry. But if you're a homeowners association and every year you're electing a new director, or maybe it's every two years that somebody you know actually resigns and the position is open, you have to update that and show who is the new director. Now, what do you do with the old director? What do you do with the person that owned the 25%? There's not a lot of guidance. There's nothing that says remove them. So I think the best thing to do is to file basically an amendment for the company, and identify as of this day, it's, these are the the three or four, or, you know, 18 directors, all right, or beneficial owners. And so you update it, but then it's a problem, because you got to ask everybody again, "I need a copy of your passport or a copy of your license." And you know how much you love to share that over the internet with people. You don't, all right, and so, so what do you do? So FinCEN actually has something called a unique FinCEN identifier. And I went and got that done because I knew I was going to be throwing my information out there regularly. And I tell clients, I mean, if you've got this, you know, whoever owns a, a, a group of companies and and you've got a holding company, and then tiers with multiple tiers below those, you know, upper tiers, what do you do? Well, you don't want to be uploading your passport and your driver's license for each of these. First of all, just the time it takes whether you're doing it or you're paying an accountant or an attorney to do it. You don't want to spend the time. So you get, you file once and you just ask for a unique identifier number. I have one. It's a 12 digit number. I write it down. I've got it. And so until my information changes, the same with you, Steve, you know, when your information changes, you change it there once, and it goes across all of these companies. And so you don't have to worry about, you know, I've got, you know, 40 companies. And that's not unbelievable. If you have, you know, if you have a an operating company, and there are multiple locations in multiple states, and they own the real estate under it, and, and they have, they put their, their rolling stock for that state in one company, and and they put equipment in another entity, and and you start having five and six entities for every state location.

Speaker  48:31  
And you got six states, you got 30, 36 entities. You don't want to be changing this for all the time, because first of all you're going to miss one possibly, and the time it takes. So just, just get that unique FinCEN identifier, and you plug that number in, and you're done. So David, do you feel like this is something that entity owners can do on their own, or do you, do you feel like they're well advised to have professional help? I think, I mean, it really depends upon who it is. I have some people that I don't think they could handle it. I know others it's not a problem, especially if they have a CFO who's got the time. But a lot of my my company owners, they're moving on to the next deal. Okay, they're not, they don't have the time to sit and, you know, did I do this one, or didn't I do this one? But somebody that that knows how to do it, it's not overly complicated. You're putting in the name of the company, the you know, if you're an LLC, you get this number that starts with an L. If you're a nonprofit, it starts with an N, and you put down a number, hopefully in the right order. I think it actually bounces back if you put in the digits in the wrong order. So they must have already downloaded all that information. But it's a pretty it's a pretty fast, uh maneuver to, to put this information in, and it doesn't take long, so I think you could do it. But you may have questions. What if you have options, all right? Or, you know, what if husband and wife, what if it's husband and wife that own the stock? What do you do there? So. Do they each have it? So you're going to need some questions answered and you know, you can answer, call, call us, call your attorney and and you can get the guidance on that, but it's, it's, you know, after that, then you know. In other words, we can teach you how to fish, because this is, this is not a, this is not how we make our lives better, okay. We're just trying to help help clients. If-- Yeah. We do all sorts of clients-- Compliance issue. We do all sorts of compliance issues. We're not getting rich off of doing these reports, trust me.

51:02  
But it does take time. That's the issue. And this is a electronic filing. You're not, you're not compiling a packet of documents and putting them in an envelope and dropping them in the mail, right? Correct. It's, it's electronic. I think they have a PDF option. I've never done it because, to be honest, going to their portal and putting in the information, especially if you get your personal unique identifier number. And it's not just attorneys that can do it. You know, Steve, if you own this conglomerate, and I don't want to divulge that you do, but you know all these companies, you get that one number and you drop it in, and you're done. You know, it takes, you know, put in the name of the new company, it's, it's identifier number, state of incorporation, physical address. You're, you know, if you're the applicant for the company, you put in your name and your identifier number, if you're the owner and the only, you know, manager, you put in your name and your unique identifier, and you're done. You don't need to put in your address or anything else. Is there any cost to register or is it? No, it's free. Is there any payment? There's no, there's no cost. It's free. No cost. Do you, you know, we talked about, you've got to make filing if there's any changes, are there any other requirements to do so on a regular, recurring basis in the, in the future? No. Once you do it, it's done unless something changes-- Unless it changes, correct. Okay. That's it.

52:37  
Awesome. Well, listen-- But again, but again, there's a stay in place so the Financial Crimes Enforcement Network, euphemistically referred to as FinCEN, has said on their website that you do not have to comply until the court case is decided or there's been some some decision, even on just the the the temporary stay, but there's nothing to prevent you from filing. So you know, if, if you want to do it and just get it done, and the idea that you're not really being invaded by government by doing so you can go ahead and do it, but if you're, if you're wary of that, then you don't need to do it. The key is just to know when that stay is lifted, and that's, that's the question, if you haven't heard about this before, how are you going to hear about the stay being lifted? Yeah, yeah. I think that's, that's a key point. And and FinCEN, I don't even know this, but is, that their data is not public so you're not going to be able to go to some website like, for example, I know one of the, one of the unintended consequences of PPP is you ended up with this public database of which entity got how much money, you know, over what period of time. And a lot of people were, you know, we're quite upset that that information became public. Right. No, this is, this is private. In fact, if you're a law enforcement agency, you can submit a court request to get access, but you have to prove it up. It's not, "I'm from the Hillsboro Police Department and I need to check something out." You don't get it just with a call or a text or an email, you'd actually have to show reason for it, and it can't be shared. It can't be published. So it's, it's very limited, and that's the way it should be, because there's, there's personal information here. Yeah, yeah, absolutely. Well, listen, David, we're in your debt. Thank you so much for giving us the hour and giving us the information. This is so helpful. We're going to share it with our audience, which includes a lot of private business owners here in the marketplace, and post it up on our site.

55:00  
And we've got your contact information here. I've left it on the screen purposely for a long period of time. If people have questions or need help we we highly recommend that they get in contact with you. You're an outstanding business attorney with an impeccable reputation here in St Louis and and a heart and and and drive to help business owners. So just honored that you would come on and give us this time. Steve, this is my pleasure. Best wishes for the upcoming holidays. Thank you. Same to you and your family, David, and go out and make it a great day. And once again, thank you very much for your time. Appreciate it. Thank you. Thank you. Alrighty. Take care. Thank you for listening to the You Don't Know What You Don't Know podcast. We invite you to visit www.youdontknowwhatyoudontknow.com. And sign up to receive updates on upcoming episodes. You can also let us know if you'd like to be a guest or recommend a business owner to be interviewed. Find us on LinkedIn, Facebook and YouTube, where you can like, follow, share and join our efforts. Thanks for listening. We hope you join us again.