Corporate Transparency Act : What It means for small US businesses

If you are a business, you should already be aware (from numerous news articles and law firm news blasts) of the new reporting requirements that are mandated by the Corporate Transparency Act (CTA).  The CTA requires new entities formed 1/1/24 or later that are not exempt from the reporting requirements to file a beneficial ownership information (BOI) report within 90 days.  It also requires non-exempt entities formed prior to 1/1/24 to file BOI reports by 1/1/25.  The reports must be filed electronically with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FINCEN) at fincen.gov/boi. There are potential civil and/or criminal penalties for failure to file BOI reports.
 
If you would like assistance from our office in determining whether you need to file and with the filing itself, we can help if we are specifically engaged by you.  We can either assist you with the filing directly or provide referrals to third party services that specialize in filing BOI reports.  Due to the large number of filings expected before the end of the year, we encourage you to reach out to us before October 2024 if you would like our assistance.  

There are many exemptions from the CTA reporting requirements, but this Q&A (which is qualified by the full text of the CTA and regulations provided thereunder) focuses on what we believe will be the most common exemptions for our clients.

Question:  Is my company a reporting company?
If your company is a corporation, limited liability company or other entity created by the filing of a document with the secretary of state or any similar office in the U.S., then yes you are a reporting company. If you are a sole practitioner or general partnership, and have never filed creation documents with a secretary of state (or similar office) in the U.S., then you are not a reporting company.  

Question:  If my company is a reporting company, what is the most common exemption from reporting available to it?   
There are many exemptions available for companies in certain industries due to the fact that those companies are already subject to some form of reporting to the government.  Banks, credit unions, broker dealers in securities, investment companies and investment advisers, accounting firms, and tax-exempt entities are just a few of the types of exempt reporting companies.  Also, many companies that file reports with the Securities and Exchange Commission are exempt from reporting.
 
The most common exemption is for a large operating company.  To qualify for this exemption, the company must have more than 20 full time employees employed in the U.S., have an operating presence at a physical office within the U.S., and have filed a U.S. federal income tax return for the prior year on which it reported more than $5.0 million in gross receipts or sales that were generated from sources within the U.S.  Employees of subsidiaries or affiliated companies cannot be included in counting the required 20 employees.  If you don’t meet all of these criteria for the large operating company exemption, then you likely need to file a BOI report.

What if I have a company that is a subsidiary of another company?  
If the subsidiary is wholly owned or controlled, directly or indirectly, by another entity that qualifies for an exemption from the BOI reporting requirements, then the subsidiary is likely exempt as well.  

What if my company is inactive?
There is a very narrow exemption for reporting companies that are inactive.  To qualify, the company must have been in existence 1/1/2020 or prior, not be engaged in active business, not be owned by a foreign person, directly or indirectly, not have had an ownership change for the last 12 months, not have sent or received more than $1,000, directly or indirectly, in the last 12 months, and does not hold any assets (including ownership in another entity).
 
What is included in the BOI reports?
The BOI reports must include information on all beneficial owners.  Beneficial owners include all persons who own or control a 25% or greater ownership interest in the company and include all persons who exercise substantial control over the company.  There are detailed rules for determining the persons that fall in the category of beneficial owner.  The company may have multiple beneficial owners, depending on which part of the definition is being applied.

What about foreign companies?
If your company was formed outside of the U.S. and has registered to do business in the U.S., then yes, the foreign entity is a reporting company.  However, there may be available exemptions from reporting.

What about U.S. subsidiaries of foreign companies?
If your U.S. subsidiary company is a corporation, limited liability company or other entity created by the filing of a document with the secretary of state or any similar office in the U.S., then yes you are a reporting company.  Many foreign companies own U.S. operating or holding subsidiaries and there may be available exemptions from reporting.

These Q&As cover the most common questions and exemptions for companies not engaged in specialty businesses.  This is a summary based on many detailed definitions included in the CTA and regulations.  You should work with an advisor to confirm whether your company falls under any of the exemptions and, if not, then file your BOI reports well in advance of the deadline.