The Corporate Transparency Act (CTA) is a new law that was enacted by Congress in 2021, as part of the National Defense Authorization Act, to reduce the use of shell companies for money laundering, terrorist financing and other illicit activities. The CTA requires businesses to disclose information about their owners, officers, and controlling persons to the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury. The CTA takes effect on January 1, 2024, and all Michigan businesses will have to comply.

Corporate Transparency Act FAQs

What is the timing of the CTA reporting obligations?

Existing entities formed prior to January 1, 2024, will have until January 1, 2025, to report their initial report of beneficial owner information (BOI) to FinCEN.

Entities formed on or after January 1, 2024, will have 90 days after the date of formation to file their initial report of BOI. Updates to reports of BOI must be made within 30 calendar days after the date on which the change in BOI occurs. Errors in BOI reports must also be corrected within 30 calendar days after the reporting company has knowledge, or has reason to have knowledge, of the error.

Which entities are considered reporting companies subject to the CTA?

Reporting companies subject to the CTA include:

  • Corporations (including professional corporations)
  • Limited liability companies (including professional limited liability companies)
  • Limited partnerships
  • Limited liability partnerships
  • Business trusts
  • Any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

FinCEN recently released proposed regulations governing the CTA and trusts and has requested comments on how to apply the proposed regulations to certain kinds of trusts.

Which entities are exempt?

The following entities are among the 23 entities that are exempt from the reporting obligations of the CTA:

  • Public companies
  • Insurance companies
  • Banks
  • Registered investment companies and advisers and certain other entities subject to regulatory oversight
  • Tax exempt entities
  • Large operating companies which have (i) more than 20 full-time employees in the US, (ii) an operating presence at a physical office within the US, AND (iii) filed a federal income tax return in the US for the previous year reporting more than $5,000,000 in gross receipts or sales.

Who is a beneficial owner?

Beneficial owners are defined as natural persons who, directly or indirectly, own 25% or more of the reporting company’s equity interests or those who exercise substantial control over the reporting company.

Substantial control is defined as covering a company’s senior officers, persons with the authority to appoint or remove any senior officer or a majority of board members, and persons otherwise having the ability to provide direction or substantial influence on the company’s major decisions. A reporting company may have multiple beneficial owners.

Who is a company applicant?

BOI for up to two company applicants must be reported for entities formed on or after January 1, 2024. The two company applicants include the person who directly files the document(s) relating to the formation or registration of the reporting company, and the person who was primarily responsible for directing such filing. Entities formed prior to January 1, 2024, will not have to report BOI for their company applicants.

What personal information is required to be reported?

The following personal information will need to be reported for beneficial owners and company applicants: name, date of birth, current address and a distinctive identification number, such as from a passport or driver’s license. If an individual files their information with FinCEN directly, they may be issued a “FinCEN identifier” which can be used to report BOI instead of the required information. All reports will be filed electronically through FinCEN’s website. There will be no fee to file reports of BOI.

Is BOI publicly available?

No, BOI reported to FinCEN will be stored in a secure, nonpublic database and the CTA imposes access requirements on requestors of BOI. BOI will be available to federal agencies engaged in national security, intelligence, and law enforcement activities; state and local law enforcement agencies in connection with criminal or civil investigations; and the U.S. Department of the Treasury.

Financial institutions may also have access to the information to conduct legally required customer due diligence if customers consent.

Penalties for noncompliance with the Corporate Transparency Act

The CTA contains civil and criminal penalties for willfully failing to report and for providing false or fraudulent information. Civil penalties include a daily $500 fine for a continuing violation, up to a maximum of $10,000. Criminal penalties include up to two years’ imprisonment.

To prepare for the January 1, 2024 effective date, we recommend that existing businesses take the following preemptive steps:

  1. Determine if they are a reporting company and gather BOI
  2. Consider dissolving any unneeded and inactive entities that are not exempt from BOI reporting by year end
  3. implement internal procedures for record keeping and compliance with the CTA, as well as procedures to track changes in BOI

Questions about the new Corporate Transparency Act Updates for 2024? Connect with Hilger Hammond Senior Attorney Jill Miller for counsel on what your business needs to do ensure it stays in compliance and avoids any penalties.

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