New Law Outlaws Anonymous Shell Companies

The recently passed National Defense Authorization Act (NDAA) contained, among other things, a provision known as the Corporate Transparency Act (CTA) that will ban anonymous shell companies across the United States. This measure has been long sought after by anti-corruption activists, who consider it to be a major step in fighting money laundering and other shady business practices. Both current and future business owners should be aware of what this new law will require of them and how it may affect their businesses.

What is an Anonymous Shell Company?

The term “shell company” refers to any corporation or limited liability company (LLC) that only exists on paper as a “shell” of a business. They have no employees or assets, and do not engage in business aside from the bare minimum necessary to keep them in existence as legal entities. These shall companies may exist to hold certain assets, such as a bank account or intellectual property, on behalf of another entity, or they may be created with the intent of developing them into a full company in the future.

When a corporation or LLC is formed, it is common for the company’s owners and board members to disclose their identities for ease of communication. However, only a handful of states (which does not include New York) require corporations or LLCs to disclose their owners, meaning they could exist without anyone knowing who owned them. So long as they had a registered agent to accept mail for service of process, everything else about the company’s ownership could remain hidden from the public.

What’s Wrong With Anonymous Shell Companies?

Anonymous shell companies have long been the subject of criticism by advocates fighting against corruption and “white collar” crime. This is because anonymous shell companies still receive all the protections of a corporation or LLC, which protects their owners from legal and financial liability. Because of how well the information about these companies is shielded by the law, anonymous shell companies can easily be used for money laundering, tax evasion, or other financial crimes, concealed by the protections afforded to corporations and LLCs.

What Does The CTA Mean for My Company?

In theory, every corporation or LLC organized in the United States is now required to disclose their beneficial ownership, unless they fall into one of several statutory exceptions. This information includes their name, address, date of birth, and a driver’s license or other identifying number. This information is reported to the Financial Crimes Enforcement Network (also known as FinCEN), which is the principle intelligence agency that investigates financial crimes in the United States.

If you are concerned about the CTA and its potential impact on your company, you should speak to a lawyer knowledgeable in issues related to business law. They can help you ensure your company is in compliance with the law, and help you protect your business interests.

The business law attorneys at Blodnick, Fazio & Clark are skilled and knowledgeable in the areas of business law and commercial transactions.  With offices conveniently located in Garden City, Nassau County, and Babylon, Suffolk County, the firm provides high-quality legal care at reasonable prices. If you require legal assistance concerning business startups, formation, corporate acquisitions and mergers, corporate restructuring, or another business matter, call (516) 280-7105 or fill out our contact form for a free consultation.

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