News

Beginning next year, the Corporate Transparency Act (“CTA”) will require most smaller companies to report information regarding their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). Reporting companies formed after January 1, 2024, will have 30 days after formation to report this information, and those formed prior to 2024 will have until January 1, 2025. The CTA applies to domestic and foreign entities that are formed or registered to do business in the U.S.  The purpose of the CTA is to make it harder for bad actors to use shell companies or other opaque ownership structures for illicit activities.  This client alert is a high-level summary of some of the requirements of the Corporate Transparency Act and should not be relied on as legal advice.

Reporting Company

The new law imposes reporting obligations on “Reporting Companies,” which include corporations, limited liability companies, and any other similar entity formed or registered to do business in any U.S. state, unless the company qualifies for an exemption. The most notable exemption is for “Large Operating Companies,” which are companies with (1) more than 20 full time employees, (2) more than $5 million in gross revenue from U.S. sources, and (3) a physical presence in the U.S.

Beneficial Owners

A Reporting Company must report detailed information about each of its “Beneficial Owners,” which includes any individual who, directly or indirectly, owns at least 25% of the Reporting Company, or otherwise exercises substantial control over the Reporting Company. Executive officers, managers, and directors of a Reporting Company will generally be treated as Beneficial Owners due to their ability to control the Reporting Company. Reporting Companies that are owned or controlled by other entities will have to look through those entities and report the human that ultimately controls at least 25% of the ownership interests, unless the entity is itself specifically exempt from the reporting requirements.

Company Applicant

“Company Applicants” who form a Reporting Company after December 31, 2023, are also required to furnish information about themselves to FinCEN. Company Applicants are the persons who form the Reporting Company, including both the individual who directly files the formation or registration document and the individual who is primarily responsible for directing the filing. For example, if a law firm forms a new company for a client, both the paralegal filing the documents and the lawyer directing the paralegal to make the filing will be Company Applicants.

Information to be Reported

A Reporting Company will be required to provide information about itself, its Beneficial Owners, and Company Applicants. Information required about the Reporting Company includes its:

• full legal name and any trade name;
• current address;
• jurisdiction of registration or formation; and
• Taxpayer Identification Number.

Information Required about Beneficial Owners and Company Applicants includes:

• full legal name;
• date of birth;
• current address; and
• unique identification number from an acceptable form of identification, such as a passport or driver’s license, and a copy of the document.

Use of Beneficial Ownership Information

FinCEN is required to maintain beneficial ownership information on a “secure, nonpublic database.”  Nevertheless, FinCEN may be required to share Beneficial Owner information with other government agencies engaged in national security, intelligence, or law enforcement, including under certain circumstances, state, local and foreign agencies.

Ongoing Reporting Obligations

Reporting Companies will have an ongoing obligation to ensure their reports remain complete and correct. For example, changes in beneficial ownership information will require the Reporting Company to file an amendment within 30 days of the change.

Penalties for Violating the CTA

Failure to meet the reporting requirements can result in civil or criminal penalties including a fine of up to $10,000 and imprisonment for up to two years.

What to do Now

Reporting Companies formed prior to January 1, 2024, should begin collecting the required reporting information from their Beneficial Owners in anticipation of having to report that information next year. Company Applicants and others should put policies and procedures in place to collect beneficial ownership information prior to forming any new Reporting Companies. We recommend that you contact your attorney or other professional who is familiar with the reporting requirements to ensure that you are CTA compliant prior to the January 1, 2024 deadline.

For more information, please contact George Lee (glee@ccsb.com) or Ashley McMillan (amcmillan@ccsb.com).

In 1981, Lynn Goldsmith was commissioned by Newsweek to photograph Prince. Years later, Goldsmith granted a limited one-time use license for Vanity Fair to use one of her photos of Prince as an “artistic reference for an illustration.” The illustration was Andy Warhol’s portrait of Prince known as “Purple Prince.” However, Warhol went further and created a series of artwork based on Goldsmith’s photograph.

After Prince died in 2016, Vanity Fair’s parent company Conde Nast learned about the Prince series created by Warhol and purchased a license from the Andy Warhol Foundation (“AWF”) to publish one of the works from the series known as “Orange Prince.” Goldsmith didn’t know about the additional Prince series until 2016 when she saw Conde Nast’s magazine with Orange Prince on the cover. After she reached out to Conde Nast requesting compensation for the use of her copyrighted material, AWF sued Goldsmith for a declaratory judgment of noninfringement, or alternatively fair use. Goldsmith counterclaimed, stating Orange Prince was copyright infringement.

The Supreme Court Resolved the Dispute in Goldsmith’s Favor, But Not Entirely

The Supreme Court’s decision focuses on the first prong of the fair use test only and emphasizes the importance of the underlying purpose when creating a transformative work. An artwork becomes truly transformative when the purpose of the use is distinct from the original artwork copied, “otherwise, transformative use would swallow a copyright owner’s exclusive right to prepare derivative works.” The purposes listed as fair uses of another’s work of art include criticism, comment, news reporting, and teaching, among others. Copyright law allows these purposes because, as noted by the Court, “they contemplate the use of an original work to serve a manifestly different purpose from the work itself.”

Here, the purposes of the copyrighted photograph and Orange Prince were essentially the same—both present portraits of Prince for commercial purposes in magazines to illustrate stories about Prince. The commercial use of both works was critical to the analysis and weighted heavily against fair use for AWF. Bottom line, the “degree of difference [was] not enough for the first factor to favor AWF, given the specific context and commercial nature of the use.”

Key Takeaways

Copyright law entitles artists to protect their art, including the right to prepare derivative works that transform the original. In order to constitute fair use of another’s copyrighted work, the new work must have a purpose and character sufficiently distinct from the original artwork’s purpose and character. This decision expands protection granted to photographers and prevents other artists from recreating their photographs in slightly altered forms for use in competing commercial purposes.

What did the Supreme Court not address?

The Supreme Court did not express an opinion as to the creation, display, or sale of the remaining works in the Prince Series created by Warhol and not included in Vanity Fair’s publication of Orange Prince. They also did not revise the four-pronged fair use test that has been used since 1994. Instead, the Court limited its focus and ruling on AWF’s commercial licensing of Orange Prince—a work derived from Goldsmith’s photograph. This suggests that if Orange Prince was not used as the cover of a magazine as it was in this case, it may have been considered fair use, but the Court did not conclusively decide this issue.

Future Considerations

In her dissent, Justice Kagan points out that “what matters under [the first] factor, the majority says, is instead a marketing decision: In the majority’s view, Warhol’s licensing of the silkscreen to a magazine precludes fair use.” Because Goldsmith licensed the photo in the initial instance, Warhol’s licensing was “copying” her purpose for the work. But what if the copyrighted image was captured for purely artistic purposes, and then a different artist created something transformative (like Warhol in this case) and licensed that subsequent work for a different purpose? This factual scenario presents two different purposes, and the majority’s opinion gives no guidance on how to resolve disputes beyond the unique facts of this case that pit competing commercial purposes against each other.

The Court’s decision also begs the question of the original license. The majority may have intended that any subsequent artist who attempts to license a “transformative” work will not be able to argue fair use merely because it is being used for commercial purposes. But the opinion’s focus on the first factor as a “matter of degree” will make this opinion challenging to apply to new situations.