The CTA identifies various entities that are exempt from reporting requirements; however, most of these exemptions are unlikely to apply to the typical small business. Instead, the exemptions mainly relate to entities that are already subject to regulation, including, for example, banks, insurance companies, and other publicly traded companies that already have existing oversight and reporting requirements.
There is also an exemption for what is referred to as “large operating companies.” In order to qualify for this exemption, the company must (1) employ more than 20 employees on a full-time basis in the U.S., (2) have an operating presence at a physical office located in the U.S., and (3) generate more than $5 million in annual gross receipts or sales.
Wholly owned or controlled subsidiaries of exempt organizations are also considered exempt under the CTA.
The CTA requires that reporting companies file reports with FinCEN containing basic information, including information about the company’s beneficial owners and company applicants.
Who is Considered a “Beneficial Owner”?
The CTA defines “beneficial owners” as any individual who directly or indirectly (i) exercises substantial control of a reporting company or (ii) owns or controls at least 25% of the ownership interest in a reporting company.
An individual is considered to exercise “substantial control” when the individual: (1) serves as a senior officer of the reporting company, (2) has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body), or (3) directs, determines, or has substantial influence over “important decisions.”
The CTA states that “important decisions” include decisions regarding:
Exemptions of a “Beneficial Owner”
Exempted from the definition of a beneficial owner are the following:
Who is Considered a “Company Applicant”?
The CTA defines “company applicants” as individuals who directly file the document that creates the reporting company and the individual who is primarily responsible for directing or controlling such filing If more than one individual is involved in the filing of the document. Notably, if a reporting company was created or registered before January 1, 2024, the reporting company shall report that fact, but is not required to report information with respect to any company applicant.
What Information Needs to be Reported?
Reporting companies must report:
Reporting companies must also report the following information about their beneficial owners and company applicants:
You should be aware of the CTA and the BOI Rule and how they may apply to companies you own, control or operate. Given this is a new federal legislation, there still are many open questions concerning the implementation of the CTA. As a result, FinCEN is periodically providing guidance on this issue.
If you have any questions regarding whether the CTA creates new reporting obligations for any company owned, controlled or operated by you and how you can maintain compliance, please contact us.
Giovinco & Torres, P.A. provides this information for educational purposes only. This information should not be construed or relied upon as legal advice or to create an attorney-client relationship. Readers should not act upon this information without first seeking advice from professional advisers.