Reporting is underway for the Corporate Transparency Act: Farm and Ag Businesses must report before Jan. 1, 2025
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Beneficial Ownership Information must be reported for most businesses, including single-member LLCs. Failure to report can lead to serious civil and criminal penalties.
The Corporate Transparency Act (CTA) is an anti-money laundering law passed by Congress in 2021. The CTA, passed with bi-partisan support, requires most businesses to report information about their owners. This includes many types of farm businesses. The information will make it more difficult to illegally hide assets.
What is a “beneficial owner”?
A beneficial owner is an individual who either 1) has substantial control over a company or 2) owns 25% or more of the ownership interests of the company. Substantial control can be direct, including senior officers and any individual with the ability to appoint or remove a senior officer. However, substantial control can be indirect. Someone will be considered a “beneficial owner” if they are an important decisionmaker for the company.
The term “ownership interests” includes stock and other equity. Ownership interests can also include convertible instruments and options. The regulations seek to identify the people having control and influence over decisions, regardless of whether or not those people have their names on the shareholder list.
Who must file?
Most companies that are business entities must report. The rule is that any business entity “… created by the filing of a document with a secretary of state or any similar office in the United States” must report. A “similar office” includes Michigan’s Department of Licensing and Regulatory Affairs (LARA) and any Tribal offices where businesses are registered. Reporting companies include:
- Limited Liability Companies, including single member LLCs
- S corporations
- C corporations
- Cooperatives
- Associations
- Limited Partnerships
- Certain trusts
Note that this is not an exhaustive list. When in doubt, lean towards reporting. Foreign businesses that are registered to do business in the United States must also report.
Exceptions: who does not need to file?
Importantly, sole proprietors and husband/wife proprietor businesses will not need to report. This is because proprietorship businesses are not separate entities from their owners, and so no filing is necessary to create them.
There are also other exceptions. Businesses that do not need to report include:
- Heavily regulated companies (banks, credit unions, public utilities)
- 501(c)3 tax-exempt entities under the Internal Revenue Code
- Large companies that have:
- More than 20 full-time employees that are employed in the United States AND
- More than $5,000,000 in gross receipts or sales from sources within the United States on its previous-year’s tax return
For more details on reporting and a complete list of exceptions, see the Small Entity Compliance Guide on the FinCEN’s Beneficial Ownership Information website.
When to file?
For businesses that already exist, the Beneficial Ownership Information (BOI) filing can be made starting January 1, 2024. Filings must be made by January 1, 2025 in order to avoid civil and criminal penalties. This gives current companies one full year to make their initial BOI filing.
Companies that are created on or after January 1, 2024 must file within 30 days of receiving notice that they are registered. In Michigan, LARA’s Corporations Division is planning to let new filers know of their responsibilities under the CTA.
After the initial report is made, any changes to beneficial ownership information need to be filed within 30 days after the date of the change. Changes that need to be reported include appointing a new CEO, or someone’s acquiring more than 25% of the company through a sale or gift.
The Financial Crimes Enforcement Network (FinCEN) is the federal agency implementing the CTA. Filing will be done online via FinCEN’s website, which is currently up and running. Businesses can begin making the required filings and there is no fee.
Where to file and tips for filing
To file, visit the FINCEN website at this link. The website works relatively smoothly, but here are a few notes that may be helpful. First, select the “Get Started” tab in the Beneficial Ownership Information Reporting tab. On the next page, most small business filers will want to File Online BOIR, the second option.
The Reporting Company information page is fairly straightforward. For existing companies, check box #16. However, when you get to Part III, Beneficial Owner Information, the steps for adding multiple owners are not necessarily obvious. Once you have put in the information for Beneficial Owner #1 (including a picture of their driver’s license or passport), go to the top right of the page and click “Add Beneficial Owner” to add other owner’s information. Then, after you are done putting in information for all the necessary people in your business, click “Next” at the bottom right of the screen. This will bring you to the final submission page.
What information is required?
The information that will need to be reported is:
- The company’s legal name
- Any trade names (“doing business as” and “assumed names”)
- Current address
- Where the company was formed/ its jurisdiction (for example, Michigan)
- Tax Identification Number
The information that will need to be reported about each of the beneficial owners:
- The individual’s name
- Date of birth
- Residential address
- An identifying number from an accepted ID document (passport, U.S. driver’s license), name of the issuing state or jurisdiction, and an image of the ID document.
Companies that are registered on or after Jan. 1, 2024, will additionally need to supply information about the “company applicants” Company applicants are individuals who directly filed the document to register the company (often attorneys) and the individual primarily responsible for directing the filing.
Penalties for not reporting and late reporting
FinCEN is taking this very seriously! A failure to report could result in up to $500 a day in civil penalties until corrected. Additionally, criminal penalties of up to 2 years imprisonment and $10,000 could result. These penalties apply to fraudulent reporting as well, for example providing a fraudulent ID for a beneficial owner.
FinCEN may provide some initial flexibility for correcting mistakes within 90 days of the deadline for filing the original report.
MSU Extension is here to help
If you are unclear about whether you need to file, please contact Chris Bardenhagen or another member of the Farm Business Management Team at Michigan State University Extension. Many owners involved in complex businesses will need to work with their attorneys to determine whether they are or are not a “beneficial owner”. However, we recommend that all company owners contact their attorney if possible. This way business owners can ensure they are reporting correctly and plan for when any changes need to be reported.
