The leak of the Pandora Papers in October 2021 cast a bright spotlight on individuals who form business entities throughout the world in order to establish a cloak of anonymity over their assets and business activities. Given that Nevada is one of the most popular states in which to form a business entity, it is natural to ask: How transparent does a Nevada entity need to be with respect to its ownership?
Nevada law generally does not require corporations, limited liability companies (LLCs) or other business entities formed in Nevada to publicly disclose their ownership, although there are instances where disclosure may be required. Examples of these instances include being the subject of a criminal investigation, conducting business in the gaming industry and doing business in a few other regulated industries in Nevada.
However, Nevada entities should know that government oversight of entity ownership will be increasing throughout the U.S. based on Congress’s recent enactment of the Corporate Transparency Act (CTA). The CTA, which became effective in January 2021, is designed to assist national security, intelligence and law enforcement efforts in combating “malign actors” who conceal their entity ownership in furtherance of illegal activities such as money laundering, terrorism financing, and, more commonly, fraud.
Many entity owners fail to realize that if they do not submit a CTA report in a timely matter or if they report false or fraudulent information on a CTA report, it potentially could result in a civil penalty of up to $500 per day, a fine of up to $10,000, and imprisonment for up to two years.
The CTA will generally apply to all Nevada corporations and LLCs, as well as Nevada limited partnerships and other entities that are created by the filing of a formation document with the Nevada secretary of state. The CTA will likely not apply to general partnerships or trusts that are created in Nevada but have no Nevada formation filing requirement.
The timing is not yet certain as to when the CTA’s reporting requirement will take effect, given that FinCEN’s CTA rulemaking process is still ongoing. A clear and cautious approach for a Nevada entity that will be, or at least believes that it might be, subject to the CTA’s reporting requirements would be to start gathering the necessary CTA information for each individual who directly or indirectly owns or controls 25 percent of the entity’s ownership interests — or who could otherwise be deemed as directly or indirectly exercising substantial control over the entity.
And, of course, if a Nevada entity needs any legal advice regarding the CTA, it should contact a licensed Nevada attorney.
Christopher Walther is a director at Fennemore in Las Vegas, Nevada, and is part of the firm’s Business & Finance Practice Group; he specializes in Nevada corporate and real estate law, commercial transactions, and general business matters. Outside of the office, Chris takes pride in serving as the secretary and a director of Family Promise of Las Vegas, a nonprofit organization whose mission is to help at-risk and homeless families with children in Clark County achieve sustainable housing and independence.
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