The recent introduction of the Corporate Transparency Act (CTA) is a potential game changer for anyone owning a Wyoming Holding Company. Subsequently, let’s dig in and see what the potential impact could be.
The reality is that the past decade has seen the numbers of Wyoming domiciled entities explode due to their lack of a publicly searchable database of beneficial owners. The fact that no beneficial ownership data was held by the state has always been a huge advantage for those looking to operate legally but also protect their personal information.
For this reason, Wyoming saw an influx of businesses and individuals moving to setup cheap LLCs with the intention of obscuring ownership. As long as you had a good, registered agent on the payroll, to sign your annual reports and incorporation documents, you could manage the LLC without your name being listed publicly.
Enter the Corporate Transparency Act (CTA)
However, a new law was introduced by Congress in 2021 that sought to abolish such privacy safeguards. The Corporate Transparency Act effectively sought to require disclosure of all beneficial ownership and management interests to FINCEN. Subsequently, we have had around 3 years to prepare for the inevitable disclosures of information to the federal government as the enactment date was set as the 1st of January 2024.
In short, any entity in the US is now required, by law, to disclose all of the ownership and management interests to FINCEN on an annual basis. Failure to do so is likely to result in significant fines and other actions.
How Does This Impact a Wyoming Holding Company
Firstly, there is no immediate impact to your overarching privacy as any information disclosed to FINCEN in the filing will not be public. At this stage, there is no publicly searchable database of information and, as long as you continue to use a registered agent to sign your annual return, your personal name will not be identified.
However, you should note well that FINCEN is definitely building a real-time database of ownership which is likely to be accessible to other government agencies. Subsequently, there is no telling where that information could end up in the long run.
Additionally, in the age of data leaks and offshore scandals, I’m always skeptical of any government bodies ability to keep information secure. A significant hack/leak could immediately compromise all of the data contained within their private register.
Long Term Aspects of the CTA
The reality is that there is a global drive towards corporate transparency which is mainly directed at tax and corruption issues. Scandals, such as the paradise papers, have led to widespread condemnation of those using opaque corporate structures.
Subsequently, global tax bodies have been advocating for publicly searchable databases of ownership for years. All in the guise of tax harmonization across multiple jurisdictions. The political reality is that there is significant pressure upon the US to confirm to open corporate transparency. Therefore, it is foreseeable that the future could see that private FINCEN database becoming a national publicly searchable one.
Practicalities for a Wyoming Holding Company
At this stage, you really have no option but to comply with FINCEN’s CTA request and lodge the appropriate forms. Alternatively, you could close your LLC or holding entity and move your footprint offshore to avoid the exposure.
However, it is likely as a disregarded entity that you are already filing tax returns for your LLC to the IRS. So, it’s not like they don’t have most of the information already available to them. The CTA just clarifies that disclosure is now a legal requirement and appoints a single agency to handle the information and the database creation.
Subsequently, I’m not sure that immediately closing your holding company and running for the hills is presently the right move. As long as FINCEN’s database remains private then it is likely that you have little to fear in having your ownership exposed.
Therefore, it should be business as usual up until the point a decision is made to create a public portal for that information. At that point, absolutely, run for the hills.
The Use of Nominees for your LLC
Some privacy focused entrepreneurs are seeking to skirt the rules through the use of a nominee member/manager arrangement. The problem with this strategy is that the relevant disclosure forms require the identification of the actual ultimate beneficial owner (UBO).
Unless you are prepared to take the risk of making a false disclosure…then I recommend steering well away from this strategy. By all means, utilize a nominee…but you will still need to disclose your details within the FINCEN reports.
Wyoming remains a fantastic state to establish a disregarded LLC or a holding company within. The laws are pro-business and asset protection is a key facet of their company laws. As long as you are operating lawfully you shouldn’t fear the information disclosures as long as the Feds continue to operate a private database. However, watch out for future increases in transparency that might challenge the private nature of that.