Athletes Should Heed New Disclosure Requirements for Ownership Interests
Athletes have long sought to maintain their anonymity in business entities in which they have an ownership interest, often through trusts and similar arrangements. New disclosure requirements under the Corporate Transparency Act may result in these ownership interests becoming transparent to certain government agencies. Athletes and their business managers should be advised of, and prepared for, these new rules.
Beginning on Jan. 1, 2024, many business entities (whether formed before or after Jan. 1, 2024) will have to disclose (among other things) their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of Treasury. There are 23 exceptions to this general rule, but a newly formed business entity formed by, or for the benefit of, an athlete will often not fall within one of these 23 exceptions.
A beneficial owner is any individual who exercises substantial control over the business entity or owns or controls at least 25% of the ownership interests of the business entity. An athlete will very often be a beneficial owner in a business entity formed to pursue a business venture. Managers and other business professionals advising an athlete may be a beneficial owner too. Trustees of trusts for the benefit of an athlete and his or her family may be a beneficial owner too. A business entity can have many beneficial owners, and all of them must be disclosed.
If an athlete is a beneficial owner, the business entity will need to disclose the athlete’s name, date of birth, residential address, a unique identifying number on a government-issued document (e.g., a driver’s license number or passport number) together with an image of the government-issued document containing the unique identifying number. Business entities created or registered to do business before Jan. 1, 2024, have until Jan. 1, 2025, to file their initial disclosure reports. Business entities created or registered on or after Jan. 1, 2024, will have 30 days (subject to change by proposed regulations) to file their initial reports. Any change to the reported information in a previously filed report requires the filing of an updated report no later 30 days after the date on which the change occurred. For example, if an athlete moves to a new residence, a new report will need to be filed with FinCEN.
Many athletes and their business advisers may decide to apply for a FinCEN identifier. A FinCEN identifier is a unique number assigned by FinCEN. To obtain an identifier, an athlete will need to disclose the same information that the athlete would otherwise be required to disclose as part of a beneficial ownership report, but once a FinCEN identifier is obtained, a business entity filing a beneficial owner report can use the athlete’s FinCEN identifier in lieu of the other information and documentation that otherwise would be required to be included in the report.
The willful failure to complete or update any such reporting information or the reporting of fraudulent information may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.
Athletes and the business managers should begin preparing for these new reporting obligations. Legal counsel should be engaged to analyze an athlete’s business portfolio to determine which business entities are subject to these disclosure obligations and which individuals affiliated with the business entities are beneficial owners. Athletes thinking about starting a new business venture may want to form the business entity in 2023 (which would give the entity a full year to file its beneficial ownership statement) rather than waiting until 2024, which under current law will have a tighter deadline. Athletes may decide to formally dissolve certain entities prior to 2024. Legal documentation associated with an athlete’s business venture (operating agreements, employment agreements, trust agreements, etc.) should be updated and modified to account for these new disclosure obligations.
The Corporate Transparency Act represents a paradigm shift in the United States. New beneficial ownership reporting obligations will be a routine part of the entity formation process. Athletes, entertainers and their business managers should be well-versed in the Corporate Transparency Act and seek counsel in advance of its implementation.
"Athletes Should Heed New Disclosure Requirements for Ownership Interests," by Jeffrey M. Rosenfeld and Jacob M. Brownstein was originally published in Sports Business Journal on December 8, 2023.