Beginning January 1, 2024, the Corporate Transparency Act ( “CTA”), will implement information reporting requirements for Michigan corporations, limited liability companies, and other business entities that are and were created in or are and were registered to do business in Michigan and the United States.
Below is a summary of the CTA and what to expect as a Michigan business:
Background on the CTA
The CTA was passed to build on the Anti-Money Laundering Act of 2020, which was passed in 2020 to address increased illegal activity in areas such as corruption, money laundering, terrorist financial activity, and tax fraud.
The intent of the CTA is to prevent criminals involved in the above illegal activities by requiring additional information and reporting requirements. Specifically, companies that create multiple “shell” companies in order to conduct such activities are going to have to report on the beneficial owners not just the “shell” company created to protect them.
Although the law was passed in 2021, it wasn’t finalized until 2022. Further, it won’t take effect until January 1, 2024. This two year period was established in order to give companies the proper time to be on notice and prepare to file the appropriate documents.
Which Michigan Entities does the CTA apply to?
Corporations, limited liability companies, and other business entities that were created by a filing with the Michigan Department of Licensing and Regulatory Affairs (“LARA”).
Foreign companies with a registration to do business in Michigan and the United States.
When Do Michigan Entities Have to File?
For entities created or registered prior to January 1, 2024, they will have until January 1, 2025 to file the report.
For entities created or registered after January 1, 2024, they will have 30 days from creation or registration to file the report.
For entities created or registered prior to January 1, 2024 with a material change in the ownership or structure of its entity, such changes will need to be reported as a separate amendment filing, delivered with the initial “as of January 1, 2024” report filing required to be made on or before January 1, 2025.
For entities created or registered after January 1, 2024 with a material change in the ownership or structure of its entity, they will have thirty days to file a correction or change to any information previously reported.
Who Does Not Need to Report (Exemptions to CTA)?
The CTA has 23 exemptions. While this may seem like a lot, the exemptions primarily include certain banks, heavy regulated public companies, and government-owned entities.
How Will Michigan Entities Send the Report?
LARA will be required to inform Michigan entities of their obligations under the CTA and provide copies of the forms or links. Notification activities are required around annual filings as well. The report will be sent to the Department of the Treasury’s Financial Crimes Enforcement Network of the U.S. Department of Treasury (“FinCEN”) through secure filing system available via FinCEN’s website. The forms and electronic system have yet to be made available to the public.
What is Required to Be Reported?
In the report provided to FinCEN, the Company will be required to provide:
Its legal name and any trade name or dba;
Its principal place of business address;
The jurisdiction in which it was formed or first registered, depending on whether it’s a U.S. or foreign company; and
Its taxpayer identification number (i.e. EIN).
In the report provided to FinCEN, the beneficial owners and each Company Applicant will be required to provide:
Legal name;
Birthdate;
Address (in most cases, a home address); and
An identifying number from a driver’s license, passport, or other approved document for each individual, as well as an image of the document that the number is from.
A “Company Applicant” is an individual (or two) who, if the entity is created or registered on or after January 1, 2024:
directly files the document that creates, or first registers, the reporting company; and
is primarily responsible for directing or controlling the filing of the relevant document.
What are the Penalties of Not Reporting?
Violations of the CTA, including not reporting or reporting false information, can have severe penalties including:
a $500-a-day penalty, up to $10,000; and
up to two years’ imprisonment.
What can Michigan Entities do now?
We recommend that companies begin compiling the information of its beneficial owners, even if it is just beginning with a list of such owners. Also, we recommend that you keep an eye out for communication from your attorney for further information regarding the final rules and process to file the required information.