Under the Corporate Transparency Act, starting January 1, 2024, every limited liability company (LLC), corporation, and similar entities formed in the U.S. or a foreign country but registered to operate in the U.S. must submit a report detailing their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), unless they meet certain exemption criteria. Beneficial owners are defined as individuals who either own a minimum of 25% of the company or have substantial control over major business decisions.
The Act lists 23 exemptions, primarily benefitting entities that are already disclosing beneficial ownership information through federal reports, such as publicly traded companies or entities regulated by the Securities and Exchange Commission, and those in strictly regulated sectors like banking, utilities, accounting, and insurance.
One notable exemption is for “large operating companies,” not typically subject to existing reporting obligations or operating within highly regulated fields. In 2024, it’s estimated that millions of entities will be eligible for this exemption. It’s crucial for owners of privately held companies and their legal advisors to understand if they qualify for this exemption.
To be considered a large operating company, an entity must satisfy three specific criteria related to its workforce size, physical presence in the U.S., and financial thresholds:
1. Employee Count:
The entity must employ over 20 full-time workers in the U.S., with full-time defined as averaging at least 30 hours of work per week. Employee numbers are assessed per entity without consolidating figures across affiliated companies.
2. U.S. Operational Presence:
The entity must operate from a physical U.S. office that it owns or leases, separate from any other unaffiliated company. A company can still qualify if its only U.S. presence is through residential properties.
3. Gross Receipts or Sales:
The entity needs to have reported over $5 million in U.S. gross receipts or sales on its last federal tax return. For corporate groups filing consolidated returns, the total for the entire group applies. While employee numbers can’t be consolidated, financial figures can be.
Entities meeting these criteria are exempt from filing beneficial ownership information reports. Furthermore, in situations where a beneficial owner’s stake is through exempt entities, the reporting entity may list the names of these entities instead of the beneficial owner’s personal details.
Should an entity no longer meet the large operating company criteria, it must file a report within 30 days of losing its exempt status. Likewise, if an entity later becomes exempt, it can update its filing status accordingly. Changes in an entity’s exemption status can affect the exemption of its subsidiaries and the application of special reporting rules for beneficial owners connected through exempt entities.
For example: If a company that was previously non-exempt becomes exempt, it is required to file a newly exempt report.
