The Corporate Transparency Act – Fall in Line so you don’t Pay the Fine.

The Corporate Transparency Act (CTA) recently adopted by the Michigan legislature has new reporting requirements for businesses.  It requires any "Reporting Company" to disclose information regarding its "Beneficial Owners" and “Company Applicants," by filing it with the US Treasury Department's Financial Crimes Enforcement Network ("FinCEN").

Does your company qualify as a “Reporting Company” that must file?  Don’t let the title of the CTA fool you – it does not apply solely to corporations.  The CTA is intended to apply to any corporation, limited liability company (“LLC”), certain foreign entities, and any other entity that is “created by the filing of a document with the secretary of state or any similar office under the law of a State or Indian Tribe.” In other words, pretty much every business entity is considered required to file. There are only a few exceptions, such as large publicly traded companies.  If your company does not fall within an exception, it will be required to report specific information on the “Beneficial Owners.”  

Who is a Beneficial Owner?  “Beneficial Owner” means any individual who directly or indirectly through any contract, arrangement, understanding or relationship: (1) Exercises substantial control over a Reporting Company, or (2) Owns at least 25% of the Reporting Company, or (3) Controls ownership of at least 25% of the Reporting Company.  As a preliminary review demonstrates, the definition of “Beneficial Owners” is broad-reaching and contains a lot of gray area.

The CTA reporting requirement goes into effect January 1, 2024, and failure to adhere can result in severe penalties. As such, it is important to determine in advance if your company needs to report under the CTA. Like all government regulation, it contains nuances and complexities, and a case-by-case analysis should be done to understand your company’s legal obligations. Contact Innovative Law Group for assistance.