Corporate Transparency Act
On January 1, 2021, Congress enacted the federal Corporate Transparency Act (“CTA”). In general, the CTA requires existing and new corporate entities, including limited liability companies (“LLCs”), to submit to the United States Department of Treasury personal information regarding those who own and form the entities. Specifically, companies must report each such person’s full legal name, date of birth, current street address, and unique identifying number from a passport, government-issued identification document or driver’s license, or an identifier issued by the Department of Treasury. Failure to comply with the CTA can result in fines of up to $500 per day and imprisonment for up to two years.
New Jersey LLC Law
Although the CTA provides certain exemptions, it seems clear that many, if not most, New Jersey LLCs will need to comply with its reporting requirements. As with all new legislation, the CTA raises any number of perplexing questions. For example, it is unclear how an LLC can avoid liability if its members (i.e., owners) refuse to furnish the LLC with the information it must report. The Department of Treasury is required to promulgate rules for implementing the CTA by the end of this year. Business attorneys hope that the regulations will clarify many unanswered questions. However, future federal guidance is unlikely to completely resolve the questions that arise under related state LLC law.
Limited liability companies are formed and governed under state law. Generally, there are very few instances where a member may be expelled from an LLC merely by the vote of its other members. However, under New Jersey’s LLC law, a person may be expelled as a member of an LLC by the unanimous consent of the other members if it is unlawful to carry on the company’s activities with the person as a member. Thus, from the face of the CTA and New Jersey’s LLC law, it seems that a reasonable argument can be made that an LLC may (or must) expel a member who impedes the LLC’s ability to comply with this new federal law.
The newly enacted CTA has created many questions. Perhaps some questions will be answered in the highly anticipated federal regulations. However, those questions that extend beyond the four corners of the CTA may need to be resolved by the courts.
If you would like more information about the CTA, please feel free to contact me or visit my January 18, 2021 blog. If you would like more in-depth information on the CTA, you may wish to view a pre-recorded two-hour webinar I presented on April 27, 2021. Please feel free to contact me for information about the webinar.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.