A reporting company is one of 33 million smaller U.S. businesses that does not qualify for an exemption from CTA reporting. Most companies are “reporting companies” under FinCEN’s definition as it is difficult to qualify for an exemption.
A reporting company under the Corporate Transparency Act (CTA) can be both domestic and foreign, privately-held entities. A domestic entity refers to corporations, LLCs, or other similar entities formed by filing documentation with a secretary of state or equivalent office according to the laws of a specific state. Foreign entities are those formed under the laws of a foreign country but are registered to conduct business in a U.S. state, following the same filing process.
The CTA outlines 23 types of entities that are exempt from being classified as reporting companies. This exemption is due to their registration with regulatory agencies that already capture their beneficial ownership information. Examples include SEC-reporting companies, insurance companies, tax-exempt entities, and subsidiaries of exempt entities.
It’s also important to note that “large operating companies” are exempt from these requirements. To qualify as a large operating company, an entity must employ over 20 full-time employees in the U.S., have filed a federal U.S. income tax return in the previous year showing more than $5 million in gross receipts or sales (excluding international sources), and operate from a physical office within the U.S. This exemption mainly benefits established businesses, as startups typically cannot meet the criteria related to previous tax filings.
If a company initially qualifies for this exemption but later fails to meet the criteria, it will be required to file a beneficial owner report. Conversely, a company initially classified as a reporting company that later meets the large operating company exemption must file an updated report to reflect this change.