Archive for March 2009

Senator Levin introduces SB 569

On March 11, 2009 Senator Levin introduced a second bill, SB 569, titled the "Incorporation Transparency and Law Enforcement Assistance Act." This bill looks to obtain beneficial owner information for all corporations and LLCs formed in the United States.

Each state would be required to obtain a list of all beneficial owners of each corporation or LLC formed, maintain the information for 5 years after the entity is terminated, update the information annually and provide the information to law enforcement when presented with a subpoena or summons. The states would not be required to actually verify the ownership information provided to them.

If a U.S. corporation or LLC is formed by a non-U.S. person, the bill would require a formation agent in the state of formation to verify the identity of the non-U.S. beneficial owners by obtaining their names, addresses and passport photos. The formation agent would then issue a written certification which would be presented to the state with the formation documents.

Each state would be able to determine whether it chose to make beneficial owner information public record or keep that information private. In addition, the bill allows states to draw on funds available through the Department of Homeland Security to pay for the changes and ongoing costs associated with these new requirements.

Finally, SB 569 would require the Department of the Treasury to issue a ruling, within 90 days of passage of the bill, establishing anti-money laundering programs to be followed by formation agents. There is no identification of what might be included in the ruling and how far the requirements might go.

Read the text of SB 569 here.

I’m also including two definitions from the text of the bill for clarification of what beneficial owners and formation agents are defined to be.

BENEFICIAL OWNER- The term "beneficial owner" means an individual who has a level of control over, or entitlement to, the funds or assets of a corporation or limited liability company that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the corporation or limited liability company.

FORMATION AGENT- The term "formation agent" means a person who, for compensation, acts on behalf of another person to assist in the formation of a corporation or limited liability company under the laws of a state.

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The Stop Tax Haven Abuse Act

On March 2, 2009, Senator Carl Levin introduced Senate Bill 506, the “Stop Tax Haven Abuse Act” to the floor of the senate. The 80-plus page bill is supported by the Obama administration and an identical bill has been submitted to the House of Representatives (HR 1265). This bill is specifically aimed to eliminate loop holes that allow U.S. citizens to use offshore banks to hide money and evade paying taxes.

Buried in the bill, in Section 203, “Anti-Money Laundering Requirements for Formation Agents,” is a definition of what “formation agent” are: “persons involved in forming a new corporations, limited liability companies, partnerships, trusts and other legal entities.”

The bill then goes on to state that no later than 90 days after enactment of the bill, the IRS, the Securities and Exchange Commission and Secretary of Treasury will confer and publish a proposed rule requiring formation agents “to establish anti-money laundering programs.”

There is no hint as to what might be required under these programs, but it’s a good bet that screening of clients against watch lists, maintaining data records and reporting of suspicious activities or matches with a watch list will be among the requirements.

This bill is very vague and therefore is of great concern because we will have little knowledge of and input into the process of developing the programs which will ultimately be imposed on us.

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Nevada Corporate Scams

As I mentioned in an earlier post, corporate scams are becoming more and more prevalent in today’s world. Here is an example of a recent scam in Nevada that was sent out with the intention of purposely misleading companies for a profit.

The state of Nevada requires that all Foreign Corporations publish an “annual statement” no later than March each year in a Nevada newspaper with a circulation of at least 1000. The only entities in Nevada required to do this are Foreign Corporations. Domestic Corporations, Limited Liability Companies and Limited Partnerships are not bound by this requirement. Here are a few definitions just for clarity sake:

Nevada Domestic Corporation – A corporation that has filed their incorporation documents in the state of Nevada.

Nevada Foreign Corporation – A corporation that has filed their incorporation documents in some state other than Nevada but has filed the appropriate qualification documents to do business in Nevada.

Annual Statement – A document required to be published annually by Foreign Corporations in the state of Nevada. Minimum information to be included:
1. Corporate name
2. Name and title of corporate officer submitting the statement
3. Mailing or street address of the principal address of the corporation
4. Mailing or street address of the corporate office in Nevada, if applicable
5. Total assets and liabilities of the corporation at year end

Publication – Printing of the annual statement in a Nevada newspaper with a circulation of at least 1000.

The scam:

A Nevada-based company sent out pre-completed forms to corporations (both foreign and domestic), LLCs and LPs. The form states that it is a “Final Notice” and the deadline is March 31, 2009. It gives instructions to “Submit the Form with $24.95”. The implication is that this is a required filing. Nowhere does the form state that only Foreign Corporations are required to publish an annual statement.

I have also heard that the company sending these forms out is not even a newspaper with a circulation of more than 1,000. So, even if the form reaches a Foreign Corporation and that corporation sends in their $24.95, they have not met the statutory publication requirements.

Keep an eye out for these types of manipulative mailings. With so many statutory requirements in each state and for each type of entity, it is extremely easy to be caught in one of these nets. If you are unsure about something you have received, contact your Registered Agent for assistance with identifying whether the mailing is legitimate. If you have already been scammed, it is recommended that you contact your state’s Attorney General’s office. They probably already have information about schemes that are ongoing.

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10 Tips for Maximizing Your Vendor Relationships

We’re a couple of months into the new year and chances are good that many of us have already broken some of our New Year’s resolutions. Don’t fret; it’s never too late to start evaluating our daily routines and habits in an attempt to improve our lives. Why not start by developing some work habits that can save you time and relieve stress? My company, Parasec, has developed 10 tips for cultivating your vendor relationships. We suggest that you print this out and use this as a guide for helping you maintain a happy, beneficial relationship with all your vendors. This is one resolution that pays to keep!

1. Understand That Service is Not “Selling” – Don’t fall into the trap of vendors who are obviously just trying to sell you more services than you need. Take the time to communicate your needs and expectations – a truly service-oriented vendor will be genuinely interested in understanding your needs so he or she can successfully address them in an appropriate manner.

2. Establish a Partnership - Talk about your basic expectations and educate your vendor about your firm’s culture and your own work process. This will help establish clarity in your working relationship. Get any questions or concerns addressed up front, and communicate that teamwork between the two of you is key in getting the job done.

3. Communicate, Communicate, Communicate! Legal professionals must provide vendors sufficient information to get the job done adequately. Share information with your vendor so they will understand how they can best serve you, even if you don’t think a particular detail will make a difference. Ask your vendor to re-iterate your request back to you to make sure what you have said has been heard correctly.

4. Be Honest, and Expect Honesty in Return - Provide honest details in establishing true, accurate deadlines whenever possible and giving precise details as to what the finished product or solution should look like. This will ensure that your vendors can assess whether they can help and under what terms. By the same token, you’ll want your vendor to be honest enough with you to bring up possible problems, limitations, or alternatives – even if it means referring you to another resource if necessary to meet your parameters.

5. Plan Ahead - Either out of skepticism, lack of time or inexperience, many legal professionals don’t get their vendors involved early enough in the process. Planning ahead can help ensure that your project goes smoothly and that important deadlines can be met.

6. Don’t Be Afraid to Ask Questions - Some legal professionals don’t realize that as much experience as they might have, vendors often have more experience and knowledge in their specific specialized areas. Vendors’ knowledge can be invaluable because they deal with certain situations daily that some legal professionals encounter much less frequently – say only once a week, once a month or even once a year.

7. Demand Quality Control – Your vendor should have a quality-control process in place. Even the slightest error on documents submitted to agencies may result in delays and unexpected results. Inquire as to what kind of quality assurance your vendor offers.

8. Expect Pro-Active Error Resolution – Even with systems in place to ensure a job well done, mistakes occasionally do happen. Any vendor that says otherwise is being unrealistic, and is unprepared or reluctant to be flexible when an error occurs. It’s important that your vendor handles the situation properly. A vendor should practice pro-active problem solving with clients, and have procedures in place that allow its staff to make amends for any problem resulting from a mistake.

9. Rely on Your Vendor For New Resources - Ask your vendors to remind you of their other services that you might not need as frequently, or that you currently fulfill via a different vendor. If you have established trust with them, and they know how you like to work, it’s easier for you to work with fewer vendors. Often times if your vendor can’t provide the service themselves, they will happily suggest another resource who can. If you trust your vendor, chances are good that you can trust their recommendations.

10. No-Surprise Pricing – There should never be surprises when it comes to what services you’re getting for the price you are paying. Make sure your vendor is providing you with an itemized invoice, so it’s clear what you (and ultimately your client) are paying for – including document fees and service charges. A breakdown approach to invoicing can save you from paying for services you may not have used.

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