There is a major change on the horizon that will impact filing requirements for the vast majority of our small business clients. In January of 2021, Congress passed the Corporate Transparency Act (CTA), which amended the Anti-Money Laundering Act of 2020 (AMLA), to crack down on the use of shell companies to launder money.
You may be wondering, what does money laundering have to do with my small business? Unfortunately, shell companies are often used to hide who really owns a business and ultimately to hide assets, whether for tax evasion, to fund terrorism or other criminal activities, or to evade other financial obligations like child support. The CTA will require “reporting companies'' to provide information about the “beneficial owners” of the company to FinCEN (the U.S. Treasury Department’s Financial Crimes Enforcement Network).*
Forming a business entity like an LLC or a corporation typically provides limited liability protection to the owners. But in certain situations, you can find yourself personally on the hook for the debts and obligations of the business. This week we’re discussing the legal concept of “piercing the corporate veil” and why it’s used so often against small business owners.
In the midst of an ongoing pandemic and all of the questions it’s raised for employers, especially small business employers,* you may have missed a new Ohio employment law that’s about to take effect. The governor recently signed the Employment Law Uniformity Act into law. As an employer, what do you need to know about this new law? What steps should you take to protect your business or nonprofit in light of these changes?
You’ve come up with a great business idea, and you’ve read Business Entity 101. You’ve even decided that a corporation is the right form of entity for your business. How do you form one in Ohio? Like most issues, the steps are relatively straightforward; it’s the details you should be most concerned about.
Most, if not all, of the entrepreneurs I speak to are understandably anxious to start doing their “Great Business Idea.” In fact, their passion is why I love doing what I do (and why I became an entrepreneur myself). But that excitement also makes many entrepreneurs dive right in without doing some of the less glamorous, behind the scenes work. And a great example of this is not forming a business entity before launching the business.
Properly forming a business entity can reduce your personal exposure to liabilities of the business, minimize taxes, ensure that business is being conducted efficiently, help you obtain financing for your business, and prevent misunderstandings among the various stakeholders (your business partners, investors, managers, etc.).
So when should you form your business entity? Since the right entity can limit your personal liability, the obvious answer is before you taken on any significant business obligations. Before 1) signing any contracts or leases, 2) entering into any type of agreement with a third party, or 3) raising funds from others, even family and friends, you should have your legal business entity in place. While these types of relationships always start out very friendly, it’s these same relationships that will be the greatest potential source of conflict down the road.
You can protect yourself and your personal assets by understanding the difference between having your business enter into these legal relationships versus you personally entering into these relationships. And the key to doing so is forming a business entity. So what type of entity is right for you—sole proprietorship, partnership, limited liability company, S Corporation, or C Corporation?