Enacted by Congress on January 1, 2021, the Corporate Transparency Act (CTA) aims to prevent the use of legally formed entities for illegal activities, such as money laundering. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) will enforce the CTA and the final rules, which take effect on January 1, 2024. The CTA will apply to existing entities and those created after the rules take effect, requiring certain “reporting companies” to provide FinCEN with the personal information of specified individuals. Many, if not the vast majority, of Michigan businesses will likely fall under the CTA’s reporting requirements and require certain disclosures.

Overview of The Corporate Transparency Act Update

Under the CTA, a “reporting company” is defined as a corporation, limited liability company, similar entity, or non-U.S. entity registered to do business in the United States. Sole proprietorships and private trust instruments are likely to be exempt, while limited partnerships created by filing with LARA may be subject to the CTA.

There are 23 types of entities that are exempt from the definition of “reporting company,” which are not required to make disclosures under the CTA. These exemptions primarily include tax-exempt entities and entities engaged in regulated industries such as insurance, banking, credit unions, securities brokerage, dealing, and investment advisory. In addition, entities with more than 20 full-time employees, annual gross receipts of over $5,000,000, and a physical office in the United States are also exempt.

Reporting companies that were in existence on the CTA’s effective date of January 1, 2024 must file an initial report with FinCEN by January 1, 2025. Companies created on or after that date must file an initial report within 30 days of formation. The initial disclosure report must include information about the company and its "beneficial owners.” Companies created after the effective date must also provide personal information about the “applicant” who formed the entity.

A “beneficial owner” is any individual who has direct or indirect control over a reporting company or owns or controls at least 25% of the company’s ownership interests. The definition includes individuals who serve as senior officers, have the authority to appoint or remove senior officers or a majority of the board of directors, or have significant influence over important decisions made by the company. An “applicant” is any individual who filed the documents to create the entity, whether or not they are a beneficial owner.

Under the CTA, reporting companies must update their beneficial ownership information within 90 days of any changes and file an annual report with FinCEN. FinCEN may also request additional information from reporting companies as needed. Failure to comply with the CTA’s requirements could result in civil or criminal penalties.

We are continuing to monitor for updates regarding the CTA and working with our clients to prepare for its implementation and compliance. If you have any questions about the CTA and beneficial ownership, or if you would like a copy of any of the materials mentioned in this article, please contact:

Patrick M. Ellis, Esq.
Partner, Corporate and M&A
Kuhn Rogers PLC
Phone: (231) 947-7900
Email: pmellis@kuhnrogers.com