Corporate Transparency Act (CTA) Reporting Company Analysis and FAQs

The first step in Corporate Transparency Act (CTA) analysis is determining whether an entity is a Reporting Company. A “Reporting Company” means any entity (whether a corporation, limited liability company, or other entity types) that is (a) created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian tribe or (b) is formed under the laws of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State. 

CTA analysis needs to be performed for each entity within a company structure.

The next step is identifying any applicable exemptions from Reporting Company status for each entity within a company structure. Currently, CTA rules provide 23 exemptions, most of which involve entities already subject to regulation by governmental authorities (e.g., certain SEC-registered issuers (public companies), banks, broker-dealers, and investment advisers). One potentially significant exemption is the “large operating company” exemption, which applies to an entity that (a) directly (i.e., not on a consolidated or affiliated basis) employs more than 20 employees on a full-time basis in the United States; (b) filed in the previous year a federal income tax or information return in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate (on a consolidated basis, if applicable); and (c) has an operating presence at a physical office within the United States. Entities, the ownership interests of which are controlled or wholly owned, directly or indirectly, by certain types of exempt entities (i.e., exempt entities other than money services business, pooled investment vehicles, or entities assisting a tax-exempt entity), are also exempt from CTA reporting requirements (but the scope of this exemption is not clear). 

Note that there is no exemption for parent companies (for example, a holding company that owns only exempt entities). Accordingly, even though some entities in a company structure may qualify for one or more Reporting Company exemptions, other entities in the structure may have reporting obligations. Finally, entities that are only partially controlled or owned by exempt entities may not be themselves exempt entities.

Frequently asked questions for Reporting Company analysis are below:

1. What companies will be required to report beneficial ownership information to FinCEN?

Companies required to report are called reporting companies. There are two types of reporting companies:

Domestic reporting companies are corporations, limited liability companies, and any other entities created by filing a document with a secretary of state or any similar office in the United States.

Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country registered to do business in the United States by filing a document with a secretary of state or any similar office.

There are 23 types of entities are exempt from the reporting requirements (see Question C.2). Carefully review the qualifying criteria before concluding that your company is exempt.

2. Are some companies exempt from the reporting requirement?

Yes, 23 types of entities are exempt from the beneficial ownership information reporting requirements. These entities include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies. The following summarizes the 23 exemptions:

Exemptions to the Definition of a Reporting Company.

Each of the following is exempted from the definition of a Reporting Company according to 31 CFR 1010.380(c)(2).

1. Securities Reporting Issuer. (A) An issuer of a class of securities registered under Section 12 of the Securities Exchange Act of 1934 or (B) must file supplementary and periodic information under Section 15(d) of the Securities Exchange Act of 1934.
2. Governmental Authority. Any entity that: (A) is established under the laws of the United States, an Indian tribe, a State, or a political subdivision of a State, or an interstate compact between two or more States; and (B) exercises governmental authority on behalf of the United States or any such Indian tribe, State, or political subdivision.
3. Bank. Any bank, as defined in (A) Section 3 of the Federal Deposit Insurance Act; (B) Section 2(a) of the Investment Company Act of 1940; or (C) Section 202(a) of the Investment Advisers Act of 1940 (i.e., certain private trust companies).
4. Credit Union. Any federal or State credit union, as defined in Section 101 of the Federal Credit Union Act.
5. Depository Institution Holding Company. Any bank holding company as defined in Section 2 of the Bank Holding Company Act of 1956, or any savings and loan holding company as defined in Section 10(a) of the Home Owners’ Loan Act.
6. Money Services Business. Any money transmitting business registered with FinCEN under 31 U.S.C. 5330 and any money services business registered with FinCEN under 31 CFR 1022.380.
7. Broker or Dealer in Securities. Any broker or dealer, as those terms are defined in Section 3 of the Securities Exchange Act of 1934, that is registered under Section 15 of that Act.
8. Securities Exchange or Clearing Agency. Any exchange or clearing agency, as those terms are defined in Section 3 of the Securities Exchange Act of 1934, that is registered under Sections 6 or 17A of the Securities Exchange Act of 1934.
9. Other Exchange Act Registered Entity. Any other entity not described in items 1, 7, or 8 above is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
10. Investment Company or Investment Adviser. Any entity that is: (A) an investment company as defined in Section 3 of the Investment Company Act of 1940, or is an investment adviser as defined in Section 202 of the Investment Advisers Act of 1940; and (B) registered with the Securities and Exchange Commission under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.
11. Venture Capital Fund Adviser. Any investment adviser that: (A) is described in Section 203(l) of the Investment Advisers Act of 1940; and (B) has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor to that, with the Securities and Exchange Commission.
12. Insurance Company. Any insurance company as defined in Section 2 of the Investment Company Act of 1940.
13. State-Licensed Insurance Producer. Any entity that: (A) is an insurance producer authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State; and (B) has an operating presence at a physical office within the United States.
14. Commodity Exchange Act Registered Entity. Any entity that is a registered entity as defined in Section 1a of the Commodity Exchange Act or is: (A) a futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor, each as defined in Section 1a of the Commodity Exchange Act, or a retail foreign exchange dealer as described in Section 2(c)(2)(B) of the Commodity Exchange Act; and (B) registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.
15. Accounting Firm. Any public accounting firm registered in accordance with Section 102 of the Sarbanes-Oxley Act of 2002.
16. Public Utility. Any entity that is a regulated public utility as defined in 26 U.S.C. 7701(a)(33)(A) that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.
17. Financial Market Utility. Any financial market utility designated by the Financial Stability Oversight Council under Section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.
18. Pooled Investment Vehicle. Any pooled investment vehicle that is operated or advised by a person described in items 3, 4, 7, 10, or 11 above.
19. Tax-Exempt Entity. Any entity that is: (A) an organization that is described in Section 501(c) of the Internal Revenue Code of 1986 (the “Code”) (determined without regard to Section 508(a) of the Code) and exempt from tax under Section 501(a) of the Code, except that in the case of any such organization that ceases to be described in Section 501(c) and exempt from tax under Section 501(a), such organization shall be considered to continue to be described in this item for the 180-day period beginning on the date of the loss of such tax-exempt status; (B) a political organization, as defined in section 527(e)(1) of the Code, that is exempt from tax under Section 527(a) of the Code; or (C) a trust described in Paragraph (1) or (2) of Section 4947(a) of the Code.
20. Entity Assisting a Tax-Exempt Entity. Any entity that: (A) operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in Item 19; (B) is a United States person; (C) is beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or lawfully admitted for permanent residence; and (D) derives at least a majority of its funding or revenue from one or more United States persons that are United States citizens or lawfully admitted for permanent residence.
21. Large Operating Company. Any entity that: (A) employs more than 20 full-time employees in the United States, with “full-time employee in the United States” having the meaning provided in 26 CFR 54.4980H-1(a) and 54.4980H-3, except that the term “United States” as used in 26 CFR 54.4980H-1(a) and 54.4980H-3 has the meaning provided in § 1010.100 (H); (B) has an operating presence at a physical office within the United States; and (C) filed a federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as reported as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under federal income tax principles. For an entity that is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504 that filed a consolidated return, the applicable amount shall be the amount reported on the consolidated return for such group.
22. Subsidiary of Certain Exempt Entities. Any entity whose ownership interests are controlled or wholly owned, directly or indirectly, by one or more entities described in items 1, 2, 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, or 21.
23. Inactive Entity. Any entity that: (A) was in existence on or before January 1, 2020; (B) is not engaged in active business; (C) is not owned by a foreign person, whether directly or indirectly, wholly or partially; (D) has not experienced any change in ownership in the preceding 12-month period; (E) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period; and (F) does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company or other similar entity.

3. Are certain corporate entities reporting companies, such as statutory trusts, business trusts, or foundations?

It depends. A domestic entity such as a statutory trust, business trust, or foundation is a reporting company only if it was created by the filing of a document with a secretary of state or similar office. Likewise, a foreign entity is a reporting company only if it filed a document with a secretary of state or a similar office to register for business in the United States.

State laws vary on whether certain entity types, such as trusts, require filing a document with the secretary of state or similar office to be created or registered. If a trust is created in a U.S. jurisdiction requiring such filing, it is a reporting company unless an exemption applies. Similarly, not all states require foreign entities to register by filing a document with a secretary of state or a similar office to do business in the state.

However, suppose a foreign entity has to file a document with a secretary of state or a similar office to register to do business in a state and does so. In that case, it is a reporting company unless an exemption applies.

Entities should also consider if any exemptions to the reporting requirements apply to them. For example, a foundation may not be required to report beneficial ownership information to FinCEN if the foundation qualifies for the tax-exempt entity exemption.

4.  Is a trust considered a reporting company if it registers with a court of law for the purpose of establishing the court’s jurisdiction over any disputes involving the trust?

No. Registering a trust with a court of law to establish the court’s jurisdiction over any disputes involving the trust does not make the trust a reporting company.

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