By: Tim Williams
In 2021, we prepared a newsletter article outlining the Corporate Transparency Act (the “Act”). We want to update the previous article so that our clients are aware of the new requirements that will become effective January 1, 2024.
The Act contains new rules requiring federal registration for corporations, limited liability companies (LLCs), limited liability partnerships (LLPs), limited partnerships (LPs), and certain trusts. These rules are aimed at uncovering the ultimate personal ownership of businesses and tax-exempt organizations that are formed and used for money laundering or funding terrorist activities, and at helping identify businesses and organizations used to evade U.S. Federal Income Tax so that tax laws and penalties may be enforced against such entities. Although the aforementioned abuses are the targets of the new registration requirements, the legislation addresses these problems with a broad brush, also capturing legitimate organizations that fall under its umbrella.
The rules require the company to file information about itself, such as the legal name of the business, any assumed names, a business address, the jurisdiction of formation, and the employer or taxpayer identification number.
The Act also requires the disclosure of certain information (listed below) by every “Beneficial Owner” of the entity. The definition of “Beneficial Owner” includes any entity or individual which directly or indirectly exercises substantial control over the entity or owns at least 25% of the ownership interests of the entity. As a result, for most small businesses, all shareholders and members of the entity will be deemed a Beneficial Owner and become subject to reporting requirements.
Every Beneficial Owner will have to report the following as part of the federal registration:
- Full legal name;
- Date of birth;
- Current residential address;
- Unique identifying number from an acceptable document such as a driver’s license or a passport and a copy of that document;
- The FinCEN identifier number of the individual, if that Beneficial Owner prefers to report the information directly to FinCEN, rather than to the company.
FinCEN is the Financial Crimes Enforcement Network, which is a bureau of the United States Treasury Department.
Every corporation, LLC, PC, PLLC, LLP, LP, or other business entity created by: i) filing Articles of Incorporation or Articles of Organization (“Articles”) with the Michigan Department of Licensing and Regulatory Affairs (“LARA”), ii) filing the same with a similar agency in another state; or iii) being organized in a foreign country that is registered to do business in the United States, is required to file its Beneficial Ownership Information (“BOI”) report, unless it qualifies for an exemption.
Some companies are exempt from BOI reporting requirements despite otherwise falling under the definition of a reporting company due to the business activity of such a company. Some companies may also have special reporting requirements due to the business activity of the company. A list of these exempt companies and companies with special reporting requirements can be found in FinCEN’s Small Entity Compliance Guide on the fincen.gov website.
A company created before January 1, 2024 must file its initial BOI report by no later than January 1, 2025. A company created on or after January 1, 2024 and before January 1, 2025 must file a report within ninety (90) calendar days of the date on which it receives notice from LARA that its Articles were accepted and endorsed.
A company created on or after January 1, 2025 must file a report within thirty (30) calendar days of the date on which it receives notice from LARA that its Articles were accepted and endorsed.
There is also an ongoing requirement that reporting companies whose BOI changes in the future must file an updated report within thirty (30) calendar days of the date on which a change occurs. Examples of this include a change in Beneficial Owners, a change in officers or directors of the company, or a change in the company name, including registering a DBA.
The BOI report cannot be filed early, and companies filing the BOI must wait until January 1, 2024 or after before filing it. However, companies can and should start preparing the necessary information and documentation needed to file the BOI.
Our firm stands ready to assist you and your business in complying with the Act. Please call our office to schedule a time for an appointment to discuss action steps.
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