New FinCEN Reporting Requirement for Michigan LLCs and corporations

Posted by Lex Novus | May 15, 2023 | 0 Comments

Small business owners face serious financial penalties for failure to comply with ownership disclosure rules starting January 1, 2024.

Clients are often surprised to learn that business ownership is not a public record. It's been very easy to form a company in Michigan without disclosing who the owners are. LLCs are especially easy to anonymize, because, unlike corporations, LLCs are not required to even list their executive officers on their annual reports. This is changing.

The Corporate Transparency Act (CTA) is a new federal law that requires certain types of businesses to disclose information about their beneficial owners to the government. The CTA applies to all "reporting companies," which are defined as:

  • Corporations
  • Limited liability companies (LLCs)
  • Partnerships
  • Trusts
  • Other legal entities that are created or organized under the laws of the United States or a foreign country

Reporting companies must file a "Beneficial Ownership Report" with the Financial Crimes Enforcement Network (FinCEN). The report must include the following information about each beneficial owner:

  • Name
  • Date of birth
  • Residential address
  • Citizenship
  • Business title
  • Ownership percentage

Reporting companies have one year from the effective date of the CTA to file their initial report. Any company created or registered after the effective date of the CTA must file an initial report within 30 days of formation or registration.

You might think that there's an exemption for your small business, but that's very unlikely. Many big or highly regulated businesses are exempt. But FinCEN is more concerned about bad actors hiding among the many small companies with little activity.

The CTA imposes civil and criminal penalties for non-compliance. Civil penalties can be up to $500 per day for each day that a company is in violation of the reporting requirements. Criminal penalties can be up to $10,000 and two years in jail for willful violations of the reporting requirements.

The CTA is designed to help law enforcement combat money laundering, terrorism financing, and other illicit activities. By requiring businesses to disclose information about their beneficial owners, the CTA will make it more difficult for criminals to use shell companies and other anonymous entities to hide their assets and activities.

The CTA is a significant new law with far-reaching implications for businesses across the country. Michigan businesses should be aware of the CTA's requirements and take steps to comply with the law.

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