Guide to Corporate Transparency Act (CTA) Exemptions for Reporting Companies

November 22, 2023

Let’s take a look at the 23 specific Corporate Transparency Act exemptions, breaking down their eligibility requirements and learn valuable insights.

Our goal is to help you and others better understand the CTA and find ways to ease the challenges of regulatory filings. As of January 1, 2024, most small U.S. businesses must file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). Reporting Companies, as defined by the Corporate Transparency Act, are entities required to submit these new reports. Beneficial Owners are individuals who either own 25% or more of the company or exercise substantial control over its operations.

In This Guide:

Understanding the Corporate Transparency Act (CTA): This guide delves into the 23 specific exemptions under the CTA, offering clarity on their eligibility criteria and insights.
Consequences of Non-Compliance: Before exploring exemptions, the guide emphasizes the significant penalties and legal consequences of failing to comply with the CTA, including fines of up to $10,000 and potential legal action.
Exemptions Breakdown: The guide provides an in-depth breakdown of each exemption, starting with Large Operating Companies and extending to Government Authority Exemptions.
Special Reporting Rules: Readers will learn about the special reporting rules, including how to report ownership through exempt entities and how minor child beneficial owners are handled.
Expired Exemptions: The guide highlights the importance of timely reporting when a company no longer qualifies for a previously held exemption.
CTA Filing Deadlines: The guide explains the filing deadlines based on a company’s establishment or registration date, ensuring readers understand when they need to take action.

Consequences of Non-Compliance with the Corporate transparency act

Before listing the exemptions, It’s essential to grasp the potential ramifications of non-compliance with the Corporate Transparency Act (CTA).

The consequences for companies failing to file Beneficial Ownership Information (BOI) reports under the CTA are significant, including substantial fines that can go as high as $10,000, depending on the seriousness of the violation.

Beyond financial penalties, there are also legal consequences to consider. Individuals responsible for non-compliance within a company may face legal action, which can include the possibility of criminal charges and jail time.

These consequences underscore the critical importance of not only understanding the CTA but also actively complying with its requirements.

What are the Exemptions under the Corporate Transparency Act?

Exemption #1: Large Operating Companies

This exemption is available to organizations that meet the following criteria:

Employ more than 20 full-time workers, as defined in 26 CFR 54.4980H-1(a) and 54.4980H-3.
Employ more than 20 full-time workers within the United States, as defined in 31 CFR 1010.100(hhh).
Maintain an active office within the United States, separate from unrelated entities.
Filed a Federal income tax or information return in the United States for the previous year, with gross receipts or sales exceeding $5,000,000.

Exemption #2: Inactive Entities

Organizations qualify for this exemption if they meet these criteria:

Exist on or before January 1, 2020.
Are not actively conducting any business.
Are not owned, either directly or indirectly, by a foreign individual or entity.
Maintain consistent ownership over the past twelve months.
Have sent or received less than $1,000 in funds directly or through any financial account in the past twelve months.
Hold no assets in the United States or abroad and have no ownership interest in other entities.

Exemption #3: Bank Exemption

This exemption applies to organizations that meet any of these conditions:

Fit the definition of a “bank” under the Federal Deposit Insurance Act.
Fit the definition of a “bank” under the Investment Company Act of 1940.
Fit the definition of a “bank” under the Investment Advisers Act of 1940.

Exemption #4: Credit Union Exemption

Organizations qualify for this exemption if they meet either of these conditions:

Fit the definition of a “Federal credit union” according to the Federal Credit Union Act.
Fit the definition of a “State credit union” according to the Federal Credit Union Act.

Exemption #5: Holding Company Exemption

This exemption is available to organizations that meet either of these conditions:

Fit the definition of a “bank holding company” under the Bank Holding Company Act of 1956.
Fit the description of a “savings and loan holding company” under the Home Owners’ Loan Act.

Exemption #6: Money Transmitter Business Exemption

Organizations qualify for this exemption if they meet either of these conditions:

Are registered with FinCEN as a money-transmitting business under 31 U.S.C. 5330.
Are registered with FinCEN as a money services business under 31 CFR 1022.380.

Exemption #7: Securities Broker or Dealer Exemption

This exemption applies if organizations meet both of these conditions:

Fit the definitions of a “broker” or “dealer” under the Securities Exchange Act of 1934.
Are registered under section 15 of the Securities Exchange Act of 1934.

Exemption #8: Securities Exchange or Clearing Agency Exemption

Organizations qualify for this exemption if they meet both of these conditions:

Fit the definitions of an “exchange” or “clearing agency” under the Securities Exchange Act of 1934.
Are registered under sections 6 or 17A of the Securities Exchange Act of 1934.

Exemption #9: Exemption for Other Registered Entities

This exemption is available if organizations meet both of these conditions:

Are not a securities reporting issuer, a securities broker or dealer, or a securities exchange or clearing agency.
Are officially registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

Exemption #10: Exemption for Investment Companies or Investment Advisers

Organizations qualify for this exemption if they meet both of these conditions:

Are defined as an “investment company” or an “investment adviser” under applicable sections.
Have formally documented with the Securities and Exchange Commission under relevant authorities.

Exemption #11: Exemption for Venture Capital Fund Advisers

This exemption applies to organizations that meet both of these conditions:

Are investment advisers falling under the description in section 203(l) of the Investment Advisers Act of 1940.
Have submitted required forms to the Securities and Exchange Commission.

Exemption #12: Exemption for Insurance Companies

Organizations qualify for this exemption if they fit the definition of an “insurance company” under the Investment Company Act of 1940.

Exemption #13: Exemption for State-Licensed Insurance Producers

This exemption applies if organizations meet both of these conditions:

Are insurance producers authorized by a State and supervised by the State’s insurance commissioner or a similar official.
Maintain a physical office presence within the United States.

Exemption #14: Exemption for Commodity Exchange Act Registered Entities

Organizations qualify for this exemption if they meet either of these criteria:

Are considered a “registered entity” under the Commodity Exchange Act.
Are one of the specified types of entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.

Exemption #15: Exemption for Public Accounting Firms

This exemption is available to public accounting firms registered in compliance with the Sarbanes-Oxley Act of 2002.

Exemption #16: Exemption for Public Utilities

Organizations qualify for this exemption if they meet both of these conditions:

Fall under the definition of a “regulated public utility” as stated in 26 U.S.C. 7701(a)(33)(A).
Offer specified services within the United States.

Exemption #17: Exemption for Financial Market Utilities

This exemption applies if the Financial Stability Oversight Council officially designates organizations under the Payment, Clearing, and Settlement Supervision Act of 2010.

Exemption #18: Exemption for Pooled Investment Vehicles

Organizations qualify for this exemption if they meet both of these conditions:

Fit the criteria of a pooled investment vehicle*.
Are operated or advised by specified exempt entities.

*Special Reporting Rules for Foreign Pooled Investment Vehicles

Entities formed in foreign countries that meet the criteria of Exemption #18 are subject to separate reporting requirements, known as “foreign pooled investment vehicles.” These requirements are explained in the Reporting Rule.

Exemption #19: Exemption for Tax-Exempt Entities

Organizations qualify for this exemption if they meet any of these four criteria:

Belong to a group defined in section 501(c) of the Internal Revenue Code of 1986, exempt from taxes under section 501(a) of the Code.
Belong to a group defined in section 501(c) of the Code, with recent tax-exempt status reinstated.
Are political organizations as defined in section 527(e)(1) of the Code, exempt from taxes under section 527(a) of the Code.
Are trusts described in specific sections of the Code.

Exemption #20: Exemption for Entities Assisting Tax-Exempt Entities

Organizations qualify for this exemption if they meet all four of these criteria:

Serve the sole purpose of providing financial assistance to or exercising control over a tax-exempt entity described in Exemption #19.
Are a United States entity, as defined in 26 U.S.C. 7701(a)(30).
Are owned or controlled exclusively by one or more United States entities that are either United States citizens or legally admitted for permanent residence.
Receive most of their funding or income from one or more United States entities that are either United States citizens or legally admitted for permanent residence.

Exemption #21: Securities Reporting Issuer

This exemption applies to organizations falling into one of two categories:

Issue securities and are officially registered under the Securities Exchange Act of 1934.
Must provide extra financial information due to the same Act.

Exemption #22: Exemption for Subsidiaries of Certain Exempt Entities

Organizations qualify for this exemption if their ownership interests are controlled or wholly owned by specified exempt entities, including securities reporting issuers, governmental authorities, banks, credit unions, and others listed in Exemptions #1 to #21.

Exemption #23: Government Authority Exemption

This exemption applies when organizations meet both of these conditions:

Establish themselves under the laws of the United States, an Indian tribe, a State, or a part of a State’s government, or form through an agreement between two or more States.
Possess the authority to make decisions and act on behalf of the United States, an Indian tribe, a State, or one of its subdivisions.

Special Reporting Rules

The Reporting Rule includes four special rules that may affect what you need to report:

Owned by an exempt entity: If your organization’s ownership is through other entities that don’t need to report, you can report the names of those entities instead of individual owners.
Minor child: If a minor child is a beneficial owner, their information doesn’t need to be reported. Instead, report the required information about the child’s parent or legal guardian.
Foreign pooled investment vehicle: If your company is a foreign pooled investment vehicle, you only need to report one person with substantial control over the company.
Company applicant reporting for existing companies: If your reporting company existed or registered before January 1, 2024, you don’t have to report company applicant information.

Expired Exemptions

Regarding previous exemptions, it’s essential to note that if your company had previously qualified for an exemption but, for any reason, no longer meets the criteria for that exemption, there is a mandatory requirement to file a Beneficial Ownership Information (BOI) report within a relatively tight timeframe.

Specifically, you must submit this report within 30 calendar days of your company no longer qualifying for a previously held exemption. This stringent deadline underscores the pressing need for continuous vigilance and assessment regarding your company’s eligibility for exemptions under the Corporate Transparency Act.

CTA Filing Deadlines

It’s imperative to be well-informed about the specific timeframes within which your company must adhere to its reporting obligations. While the CTA officially comes into effect on January 1, 2024, and companies can begin submitting reports from that date onwards, there are distinct timelines for companies based on their establishment or registration dates.

For those companies that were established or registered before January 1, 2024, there is a grace period extending until January 1, 2025, during which they must file their initial BOI reports. This extended time frame provides some breathing room for older entities to prepare and meet their reporting obligations.

However, for companies that come into existence or register on or after the pivotal date of January 1, 2024, the timeline shifts. In such cases, you are required to promptly take action, as you have a relatively brief window of just 30 days from the receipt of notice regarding your company’s creation or registration to initiate and complete the filing of the initial BOI reports.

The implications that can incur with late filings, as covered earlier in our article, underscore the importance of a proactive approach to compliance. Particularly for newly established entities, to ensure they meet all regulatory requirements on time.

Corporate Transparency Act ORG

Established in 2022 to help explain the new Corporate Transparency Act regulations. Corporate Transparency Act ORG does not provide legal advice and content on these pages should not be considered legal advice.