Maryland Legislators Consider State Transparency Bill SB 954

Business owners and attorneys are struggling to learn about the federal Corporate Transparency Act, but legislators in the State of Maryland are forging ahead with new transparency requirements in their state. (Hat tip: FinCEN Report). 

Maryland Senate Bill (SB) 954 proposes to require entities formed in Maryland to file a transparency report with the Maryland Department of Assessments and Taxation (the “Department”) in addition to any beneficial ownership information (BOI) report that might be due at the federal level. 

Summary of Maryland SB 954

Maryland SB 954 was introduced in the Maryland senate on February 2, 2024 by Maryland Senator Charles E. Sydnor III (D). Sydnor, an attorney, was appointed by Governor Hogan in 2020 to complete the remaining term of a senator who resigned.  Sydnor was re-elected to the Maryland Senate in 2022.

SB 954 would require each “reporting entity” (defined as an entity created by the filing of any document with the Department) to file a report with the Department that sets forth names of the reporting entity’s “applicant” and each “beneficial owner”.  Sec. 1.210(B).

The “applicant” is the individual who “files with the Department any document causing a reporting entity to be formed.” Sec. 1.210(A)(3).

The term “beneficial owner” is defined as an individual who, through any contract, arrangement, understanding, relationship, or other means: 1. Exercises substantial control over a reporting entity; or (2) Owns or controls at least 25% of the ownership interest of a reporting entity.” Sec. 1.210(A)(4).

The report must include, for the applicant and each beneficial owner, that individual’s full legal name, current residential or business address, and an acceptable identification document.  Sec. 1.210(B)(1).

The “acceptable identification document” should be (i) a valid U.S. passport, (ii) a valid identification document issued by a state, local government, or Indian tribe, or (iii) a valid driver’s license issued by a state, or (iv) if the individual does not have any of the foregoing items, a valid passport issued by a foreign government.

Timing of Reports Under SB 954

If adopted into law, Maryland SB 954 would require a newly formed entity to files its initial report within “30 days after the filing of documents with the Department that caused the reporting entity to be formed.”  Sec. 1.210(B)(2).

Entities formed before the effective date of Maryland SB 954 would have until October 1, 2025 to file an initial report.  SB 954, Sec. 2.

If adopted into law, SB 954 would take effect October 1, 2024.  Sec. 3.

If the information required in any report changes, the reporting entity must file an amended report with the Department within 30 days after the change.  Sec. 1.210(B)(3).

SB 954 Rule Regarding Minors

If a minor is a beneficial owner of the reporting entity, the reporting entity should not disclose the name of the minor but should instead provide the required information with respect to one parent or guardian of the minor.  Sec. 1.210(B)(4).

Penalties for Violating Maryland SB 954

A may not fail to file a report required by SB 954.  The Department may impose a civil penalty for any violation of SB 954 that may not exceed $500 per day of violation.  Sec. 1.210(C).

Comparison to Federal Corporate Transparency Act

Maryland SB 954 is similar to the CTA in many ways, but contains many important differences.

Scope

Although the CTA applies to any reporting company formed in the U.S. or outside the U.S. (if registered to do business in the U.S.), Maryland SB 954 would only apply to entities formed in the State of Maryland.  SB 954 does not require foreign entities doing business in the State of Maryland to file.

Reporting Entities

The CTA applies to reporting companies that may be U.S.-formed corporations and LLCs and entities outside the U.S. that register to do business in the U.S.  Maryland SB 954 would only apply to entities that are formed by the filing of a document with the Maryland Department of Assessments and Taxation.

Exempt Entities

The CTA contained 23 categories of exempt entities that would not be required to file.  The CTA also empowers FinCEN to create new exempt categories in the future.  Maryland SB 954 does not contain any categories of exemption.  Maryland SB 954 does not expressly empower the implementing regulator to create categories of exemption.

Substantial Control

Both the CTA and Maryland SB 954 define “beneficial owner” to include any individual who exercises substantial control over the reporting company.  The CTA contained a definition of “substantial control.”  Maryland SB 954 makes no attempt to define “substantial control.”

If Maryland SB 954 is adopted into law, the implementing regulator may adopt the federal definition of “substantial control” from FinCEN’s Final Rule on beneficial ownership reporting, or it may adopt a wholly new definition.

Excluded Individuals

Both the CTA and Maryland SB 954 exclude minors from being reporting.  Each of the two laws requires a reporting company to report the name of a parent or guardian in place of the name of the minor.

Unlike the CTA, Maryland SB 954 does not exclude custodians or agents.  Thus, individuals excluded as a custodian or agent under the federal CTA might nevertheless be included under Maryland SB 954.

Conclusion

Maryland SB 954 has merely been proposed in the Maryland Senate and may never be adopted into law.  If the bill becomes law, however, it could be the second state-level transparency statute (after New York) to come into existence.

Practitioners with clients formed in the State of Maryland should stay apprised of SB 954 as its passage could complicate the regulatory requirements on Maryland companies if the law takes effect on October 1, 2024.

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