The Corporate Transparency Act mandates certain reporting requirements for beneficial ownership information for certain companies, with the goal of preventing the illicit use of anonymous shell companies for financial crimes. While the primary aim of the Corporate Transparency Act is to enhance transparency, it recognizes certain exemptions to the reporting requirements. These exemptions are designed to balance the need for transparency with privacy concerns and to avoid unnecessary burdens on certain entities. The exemptions include:

  1. Publicly Traded Companies/Reporting Securities Issuers:
    • Exemption: Companies that are already subject to substantial reporting requirements under federal securities laws are generally exempt from the CTA reporting requirements.
    • Example: Publicly traded companies listed on stock exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ, are typically exempt because they already disclose detailed ownership and financial information to the Securities and Exchange Commission (SEC) and the public.
  1. Government Entities:
    • Exemption: Entities owned or controlled by a federal, state, local, or tribal government are generally exempt from reporting.
    • Example: Government agencies, enterprises, or instrumentalities are exempt, recognizing that these entities are subject to a different set of transparency and accountability mechanisms.
  1. Banks:
    • Exemption: Any bank as defined under section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), section 29a) of het Investment Company Act of 1940 (15 U.S.C. 80a-2(a)), or section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)).
    • Example: Federal and state registered banks which are already subject to strict regulatory oversight and reporting requirements under the Bank Secrecy Act.
  1. Credit Unions:
    • Exemption: Any federal or state credit unions defined under section 101 of the Federal Credit Union Act.
    • Example: Federal and state credit unions which already report extensive business information including information related to anti-money laundering and know-your-customer obligations.
  1. Depository Institution Holding Company:
    • Exemption: Any bank holding company as defined in section 2 of the Bank Holding Company Act of 1956, or any savings and loan company as defined in section 10(a) of the Home Owners’ Loan Act.
    • Example: Financial services companies that operate as a holding company for various subsidiaries including bank and control a range of financial services through its subsidiaries. These kinds of entities are also exempt as they disclose large amounts of corporate governance and consumer protection reporting under current federal law.
  1. Money Services Business:
    • Exemption: 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.
    • Example: Any money transmitter, check cashers, currency exchangers, and similar entities are required to report large amount of anti-money laundering and counter terrorist financing information to FinCEN.
  1. Broker or Dealer in Securities:
    • Exemption: A broker or dealer defined under section3 of the Securities Exchange Act of 1934 or registered under section 15 of the Securities Exchange Act of 1934.
    • Example: Entities that facilitate the buying and selling of securities on behalf of its clients and are beholden to previously established reporting requirements by the Securities Exchange Commission and other governing bodies.
  1. Securities Exchange or Clearing Agency:
    • Exemption: An exchange or clearing agency as defined in section 3 of the Securities Exchange Act of 1934 and is registered under section 15 of the Securities Exchange Act of 1934.
    • Example: Exchanges such as the New York Stock Exchange and clearing agencies which provide clearing and settlement services for financial transactions. These financial entities already have comprehensive reporting requirements under current U.S. law.
  1. Other Exchange Act Registered Entity:
    • Exemption: Any other entity not described in numbers 1, 7, or 8 that is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.
    • Example: This could include things such as a transfer agent which manage and maintain records of securities owners including details on holdings and transactions.
  1. Investment Company or Investment Adviser:
    • Exemption: Investment companies and advisers defined under section 3 of the Investment Company Act of 1940 and section 202 of the Investment Advisers Act of 1940 respectively and registered with Securities Exchange Commission.
    • Example: Companies like Vanguard Group and Advisers like BlackRock currently report large amounts of reporting information due to requirements laid down by the Securities and Exchange Commission.
  1. Venture Capital Fund Adviser:
    • Exemption: An investment adviser as described in section 203(I) of the Investment Advisers Act of 1940 and has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV with the SEC.
    • Example: Entities which are involved in funding and supporting startups and early-stage companies often in innovation and technology sectors.
  1. Insurance Company:
    • Exemption: Any insurance company defined in section 2 of the Investment Company Act of 1940:
    • Example: Insurance companies in the U.S which are required to report large amounts of financial and ownership information to various federal agencies.
  1. State-Licensed Insurance Producer:
    • Exemption: Entitles that are authorized by a state and subject to supervision by the insurance official or agency of that state and has a physical operating presence in the U.S.
    • Example: Insurance providers which sell state specific insurance packages and are monitored by the state insurance department or commission of each individual state.
  1. Commodity Exchange Act Registered Entity:
    • Exemption: any registered entity defined in section 1(a) of the Commodity Exchange Act or (b) (i) futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor defined in section 1(a), or retail foreign exchange dealer defined in section 2(c)(2)(B), of the Commodity Exchange Act and registered with the Commodity Futures Trading Commission.
    • Example: Derivatives exchanges such as the Chicago Mercantile Exchange which operates futures and options exchanges for the trading of commodities and subject to regulatory oversight by the CFTC.
  1. Accounting Firm:
    • Exemption: Any public accounting firm registered under section 102 of the Sarbanes-Oxley Act of 2002.
    • Example: Entities providing services such as audit and assurance, tax consulting, and advisory services and registered under Sarbanes-Oxley which already requires broad reporting requirements.
  1. Public Utilities:
    • Exemption: Entities that are regulated as a public utility as defined in 26 U.S.C. 7701(a)(33)(A) and provide telecommunications services, electrical power, natural gas, or water and sewer services within the U.S.
    • Example: Local and state utility entities which provide necessary amenities to residents of said jurisdiction.
  1. Financial Market Utility:
    • Exemption: Any financial market utility designated by the Financial Stability Oversight Council under section 804 of Payment, Clearing, and Settlement Supervision Act of 2010.
    • Example: An entity which provides services such as clearing and settlement and securities depository.
  1. Pooled Investment Vehicles:
    • Exemption: Any pooled investment vehicle that is operated or advised by a person described in 3, 4, 7, 10, or 11 above.
    • Example: Funds which include multiple investors pooled together to invest in a diversified portfolio of securities and other assets. Anti-money laundering and Know-your-customer reporting requirements are already in place for these kinds of entities.
  1. Tax-Exempt Entities:
    • Exemption: Certain nonprofit organizations, particularly those recognized as tax-exempt under section 501(c) of the Internal Revenue Code, may be exempt from reporting.
    • Example: Charitable organizations, educational institutions, and other nonprofits that meet the criteria for tax-exempt status are typically exempt from the CTA reporting requirements.
  1. Entities Assisting Tax Exempt Entities:
    • Exemption: Any entity that operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in Item 19; is a United States person; 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 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.
    • Example: Entities that provide services to tax exempt entities such as tax compliance, audit and assurance services, internal controls and risk management.
  1. Inactive Entities:
    • Exemption: entities that were in existence before January 1, 2020; are not engaged in active business; are not owned by a foreign person directly or indirectly, wholly or partially; have not experienced any change in ownership in the preceding twelve months; have not sent or received any funds greater than $1,000, either directly or through any account the entity or an affiliate had an interest, in the preceding twelve months; and does not hold any assets in the U.S. or abroad, including any ownership interests.
    • Example: Entities which are not actively conducting business but retain their state and/or federal incorporation and registrations.
  1. Large Operating Entities:
    • Exemption: Entities that employ more than 20 full-time employees within the United States, filed in the previous year Federal tax returns that evidence more than $5,000,000.00 in gross sales, and has operations at a physical office in the United States.
    • Example: Entities with high profit margins and large staffing needs such as grocery stores, restaurants, construction, manufacturing, or tech companies.
    • The important thing to remember with this exemption is that it doesn’t just apply to large entities like Walmart or Stripe, it may often apply to a subset smaller companies that meet the employment and gross sales margins.
  1. Subsidiaries of Certain Exempt Entities:
    • Exemption: An entity whose ownership interests are controlled or wholly owned, directly or indirectly, by any exempt entity, except money services businesses, pooled investment vehicles, entities assisting a tax-exempt entity, or inactive entities.
    • Example: Subsidiaries of any entity above besides 6, 18, 19, 20, and 21.

The exemptions in the Corporate Transparency Act are designed to target specific categories of entities, avoiding unnecessary regulatory duplication, and recognizing existing transparency mechanisms in place for certain types of organizations. Certain exemptions will be utilized more than others like the Large Operating Entities and Tax-Exempt Entities which apply to many non-financial and private entities in the United States. Understanding these exemptions will be crucial moving forward as the legal landscape and entity status can change quickly which may alter an entity’s reporting requirements. It is essential to refer to the specific language of the law and any subsequent regulatory guidance for a comprehensive understanding of the exemptions and reporting obligations to stay compliant as the CTA takes effect and builds out its enforcement mechanisms.

The Corporate Transparency Act includes exemptions to balance the need for increased corporate transparency with the privacy and operational concerns of certain entities. These exemptions aim to target the reporting requirements more precisely, ensuring that the regulatory burden falls on those entities most likely to be involved in illicit financial activities. Please contact the Firm if you would like to discuss whether your entity may be exempted from the CTA’s reporting requirements.

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