[UPDATED 11/21/2022: FinCEN Published Final Rule]

Corporate Transparency Act Overview Part 2: Exemptions

This is Part 2 of our three-part series on the Corporate Transparency Act (CTA). The CTA is being implemented by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). In general, it establishes reporting requirements for certain new and existing domestic companies and foreign companies registered to do business in the United States.

In Part 1, we explored the types of information that companies will have to disclose under the CTA. However, the CTA provides that certain companies are exempt from these reporting requirements. Businesses should review these exemptions to determine whether their company is exempt.

Who is Required to Report?

In general, the CTA identifies two types of entities that are subject to the law (referred to as “reporting companies”):

1. Any entity that is created by the filing of a document with a secretary of state or similar office of a jurisdiction within the United States; and
2. An entity formed under the law of a foreign jurisdiction that is registered to do business within the United States.

Who is Exempt?

At first glance, a “reporting company” based on the above definition is essentially every company, but the CTA further identifies 23 specific types of companies that are exempt from the CTA, and thus do not have to comply with the reporting requirements.

Many exemptions aim to exclude companies that are already subject to substantial state or federal regulation. Examples of exempt companies include: (i) public utilities, (ii) certain public accounting firms, (iii) SEC reporting companies, (iv) investment advisors, (v) insurance companies and (vi) banks.

One other exemption of note is what the CTA refers to as “large operating companies.” These are companies that employ more than 20 full-time employees, have filed tax returns demonstrating more than $5,000,000 in gross receipts or sales and have an operating presence at a physical office within the U.S.  A full-time employee generally must work 30 hours per week or 130 hours per month. To have an operating presence in the U.S., an entity must have a physical office owned or leased by the entity, which is not a residence, and not a shared space.

Additionally, any company that is owned by an exempt entity will also be deemed exempt from the CTA.

Am I Required to Report?

If you own a business, your company is almost certainly a “reporting company,” but the question is whether your company falls under one of the CTA’s exemptions. The above list is simplified and not all encompassing, so if you believe your company is exempt or want to further understand all of the exempt reporting companies, please contact Alex Jones (AEJ@kjk.com; 216.736.7241) or Samantha Cira (SMC@kjk.com; 216.736.7232).