As you set up worker cooperatives, an important step is choosing the right legal structure. Once you’ve made that decision, your next steps include registering your business, getting acquainted with the Corporate Transparency Act, and obtaining an Employer Identification Number.
Corporate Transparency Act
The Corporate Transparency Act (CTA) generally requires LLCs to submit information about their “ultimate beneficial owners” to the Financial Crimes Enforcement Network (FinCEN) of the United States Department of Justice.
Specifically, each LLC must provide the following information about each “ultimate beneficial owner”:
- Full legal name
- Date of birth
- Current residential or business address of each “ultimate beneficial owner”
- A unique identification number (from a passport or state, county, or city-issued ID) and an image of the ID
Who is a Beneficial Owner?
- Any person who owns at least 25% of the business; and
- Any person who has substantial control over the business.
- Any individual who otherwise directs, determines, or has “substantial influence” over “important decisions” is considered to have substantial control.
When do you have to submit your information?
- Cooperatives that were created before December 31, 2023, have until the end of 2024 to submit their information.
- Cooperatives that were created in the year 2024 have 90 days to submit their information.
- Cooperatives formed from 2025 onwards will have 30 days to submit their information.
- For all cooperatives, if any information changes, they have 30 days to send the updated information.
Why is it important to submit the information of each ultimate beneficiary?
The consequences if you intentionally decide not to submit your information are as follows:
- Civil penalties: up to $500 dollars per day for each day the violation continues.
- Criminal penalties: imprisonment of up to 2 years and/or a fine of up to $10,000 dollars.
- The cooperative, senior officials, and anyone who intentionally provides false information to the declarant or refuses to provide information may be subject to penalties.
Things to keep in mind:
- The information is kept in a private database. We know that government offices will have access to this database if they send a request to the Department of Justice to obtain information. We do not know if this includes ICE.
- For now, we are waiting to see how this new law will be applied and what impact it may have on immigrant cooperatives with members who have mixed status.
- To fulfill the identification requirement, an ID given by the county or city can be submitted.
Corporate Transparency Act Resources
How to Register Your LLC Cooperative
The rules for registering an LLC vary state by state. Below we will discuss the specifics on how to register your LLC in California. Here is a 50-State Guide to Forming an LLC. It’s crucial to seek legal counsel in your state to ensure that you’re adhering to the appropriate procedures.
- Choose a name
- Check availability on the Secretary of State’s website. Optionally, reserve the name for 60 days here.
- Prepare and submit the Articles of Organization to the Secretary of State (here, select “Articles of Organization – CA LLC”. Make sure to check “Member-Managed”.
- Prepare the operating agreement. Our drafts (in English/Spanish): one with illustrations and one without illustrations.
Continue registering it with the Secretary of State
Once you receive an email notification that the Secretary of State has approved your articles of organization:
- All those who want to become members must sign the operating agreement.
- You have 90 days from the notification to submit the statement of information to the Secretary (here type the name of your LLC in the box, click the magnifying glass button, select your LLC, and follow the instructions to fill out the form and pay $20).
- You have 90 days from the notification to submit information about your ultimate beneficiaries to FinCEN.
- Obtain an Employer Identification Number (EIN) from the IRS for your new LLC. To get your EIN, you need to have a social security number or an Individual Taxpayer Identification Number (ITIN).
- Submit Beneficial Ownership Information:
- Submit information about your LLC and its ultimate beneficiaries here. (Penalties for failure to submit information: A charge of up to $500 per day for each day the violation continues. Imprisonment of up to 2 years and/or a fine of up to $10,000.)
After registering
- Pay the annual $800 tax with the California Franchise Tax Board. You have until the 15th day of the fourth month after registering your LLC to pay this tax.
- You have until the 15th day of the fourth month after registering your LLC to pay this tax. For example: If you register your LLC on June 18th, you have until September 15th to pay. (June, July, August, and then September is the fourth month.) Each following year, you must pay this tax before the 15th day of the fourth month of your fiscal year. You must pay this tax every year until you cancel your LLC, even if you are not conducting business.
- If you are going to have employees: obtain a California state employer account number.
- Open a bank account (you will need an EIN)* for the LLC that is separate from the members’ personal accounts.
- Obtain permits, licenses, and insurance.
- Hire an accountant.
- Implement operational and management structures.
How to Register Your Cooperative Corporation
Discover the essentials of registering your Cooperative Corporation in California with our concise Bite-size legal guide. Keep in mind that the details may vary from state to state, depending on whether your state has legislation specific to cooperative corporations.
Explore this State Cooperative Statute Library provided by the U.S. Department of Agriculture, which can be a valuable resource for identifying whether your state has tailored provisions for cooperative corporations. Make sure to also seek legal counsel in your state to ensure that you’re adhering to the appropriate procedures.
Related Articles
Choosing the Right Entity for Your Co-op
Choosing the Right Legal Structure for Your Coop If you wish to start a cooperative business, it is important to choose the right legal structure for a number of reasons, including the application of employment law, liability, and taxation. This section will help you get started choosing the best legal structure for your coop. The
Loconomics’ Conversion to a Freelancer-Owned Cooperative
Loconomics is an online platform where people may offer their services to strangers who use the platform to book, pay for, and review the services. Loconomics is a great example of a business conversion into a free-lancer cooperative that creates greater income security and better working conditions in this growing sector of the economy. Co-op
Cooperative Bylaws and Other Governance Documents
Governance documents provide clarity about the rules that a cooperative’s members agree to follow, and can play a major role in avoiding lengthy conflicts. A cooperative’s governance documents are the written documents that set out rules for the cooperative’s members and the cooperative as a whole. This page generally describes the purposes and types of
