Corporate Transparency Act Exemptions Explained

The Corporate Transparency Act (CTA) aims to prevent illicit financial transactions through shell companies or legitimate businesses. As part of those efforts, it requires the Financial Crimes Enforcement Network (FinCEN) to gather beneficial ownership information (BOI) from reporting companies.

This means that if your organization qualifies as a reporting company, you must file a report containing the identifiable information of all beneficial owners.

To help you understand if the CTA applies to you, this guide clarifies the definitions of reporting companies and beneficial owners alongside all the relevant Corporate Transparency Act exemptions.

You’ll also learn how Harbor Compliance handles BOI reporting to help your company avoid violating the CTA due to misunderstandings.

Corporate Transparency Act—Exempt Entities

The first category of CTA exemptions relates to the types of legal entities that aren’t obligated to report BOI. FinCEN only requires the so-called “reporting companies” to file a report—this encompasses corporations, LLCs, and other organizations formed by the secretary of state or another governing body through the submission of appropriate registration documents.

Note that this also includes foreign companies—entities created outside of the U.S. registered to do business in the nation.

The CTA singled out 23 types of legal entities that aren’t subject to BOI reporting either because they’re already heavily regulated or the collection of BOI doesn’t serve the public interest. Those entities are as follows:

1. Securities reporting issuers
2. Governmental authorities
3. Banks
4. Credit unions
5. Depository institution holding companies
6. Money services businesses
7. Brokers or dealers in securities
8. Securities exchange or clearing agencies
9. Other Exchange Act registered entities
10. Investment companies or investment advisers
11. Venture capital fund advisers
12. Insurance companies—Including any company whose “primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies,” as per 15 U.S.C. 80a-2
13. State-licensed insurance producers
14. Commodity Exchange Act registered entities
15. Accounting firms
16. Public utilities
17. Financial market utilities
18. Pooled investment vehicles
19. Tax-exempt entities—Under Sections 501(a), 501(c), 527(a), 527(e)1, and 4947(a) of the Internal Revenue Code of 1986
20. Entities assisting a tax-exempt entity—Any entity that exclusively governs or financially assists the above tax-exempt entities
21. Large operating companies—Companies with over 20 full-time employees and over $5 million in annual sales
22. Subsidiaries of certain exempt entities—Exemptions 1–21, excluding #6 and #18
23. Inactive entities—Entities that existed on or before January 1, 2020, which currently aren’t engaged in any business activity or hold any assets, and haven’t had any ownership changes or received over $1,000 in the previous 12 months

Each entity type must meet specific criteria set by the CTA to qualify for an exemption. You can refer to the Small Entity Compliance Guide for a detailed overview of the requirements.

Exceptions From the Beneficial Owner Definition

By definition, a beneficial owner is an individual within a reporting company that meets either of the following two requirements:

1. Having substantial control over a company—This includes senior officers, important decision-makers, individuals who can appoint/remove senior officers, and those who otherwise exercise substantial control over the company’s operations.
2. Owning/controlling 25% or more of the company’s ownership interests—There are various forms of ownership interest, including but not limited to equity, stock, voting rights, convertible instruments, and capital or profit interest.

Even if an individual meets either of the above criteria, they’re exempt from the CTA’s BOI requirements if they fall under one of the following five categories:

1. Minor children
2. Nominees, intermediaries, custodians, or agents
3. Employees
4. Inheritors
5. Creditors

Note that some of these categories have special rules that you should keep in mind. For example, to qualify for the CTA exemption as an employee, an individual has to meet the following three criteria:

1. Being subject to the control and will of the employer, who has the power to discharge them from work
2. Having economic benefits or substantial control over the company derived only from their employee status
3. Not serving as the company’s senior officer

Not Qualified for an Exemption? Let Harbor Compliance Take Over BOI Reporting

If none of the above exemptions apply to your company, you need to submit a BOI report and keep all information accurate through regular updates (and corrections if needed). To save you the considerable time and effort involved in reporting, we’ve launched a robust BOI Reporting Service.

When you sign up, we’ll prepare and submit the report on your behalf, so you won’t need to file anything on your own. You’ll get proof that the report has been submitted and can enjoy our ongoing support to keep your company’s BOI up to date.

If you opt for our Records Manager add-on, we’ll also track all the relevant ownership and leadership information to ensure there are no inaccuracies.

With Harbor Compliance, you’ll get a fully managed approach to BOI reporting, so you can outsource this task and focus on important work.

Why Choose Our BOI Reporting Service?

You technically don’t need a third-party service to report BOI, but leveraging it is an excellent way to avoid worrying about yet another regulatory requirement. This is especially true because reporting doesn’t end once you’ve filed the initial report—the real challenge lies in making sure the provided information doesn’t become outdated.

This can happen if you don’t update FinCEN in various situations, such as the following:

• Your corporate structure has shifted, so you have more or fewer beneficial owners than initially reported.
• A beneficial owner’s information has changed (e.g., they’ve moved and have a new address).
• Some of the provided documents have expired or are no longer valid (e.g., a beneficial owner has changed their passport provided to FinCEN as proof of identity).

If you worry about failing to report an update that can cause a violation and expose you to civil or criminal penalties, all you need to do is inform us when something changes. We’ll even send you automated periodic reminders to check if any of the company’s BOI needs to be updated and submit those updates in your name alongside any corrections as needed—up to four times per year.

Records Manager can also be useful for identifying beneficial owners and keeping their information accurate. It can remove any doubt as to whether you should include an individual’s information in the report, so you can rest assured there are no violations.

How To Order Our BOI Reporting Service

You can order our BOI Reporting Service online by completing a simple signup wizard. The first step is to choose from the three available options:

1. Single business
2. Nonprofit that is not 501(c) exempt
3. Multiple entities

Select the appropriate option, and you’ll be taken to a form asking for contact and company information. Fill out the necessary fields and check out, and we’ll take it from there.

After gathering all the relevant information, we’ll compile and submit your initial BOI report to FinCEN. Our team of experts will remain at your exposal in case you need to make any changes.

Explore Our Robust Service Portfolio

BOI reporting is only one of the many regulatory obligations Harbor Compliance can help you meet. Refer to the following table for an overview of our most popular additional services:

BOI Reporting FAQs

In this section, you’ll see some of the most commonly asked questions about BOI reporting. If you need additional guidance, explore our Information Center or FinCEN’s FAQ page.

Report BOI Effortlessly With Harbor Compliance

BOI reporting can be quite taxing and time-consuming. Luckily, you can entrust the process to a team of experts. Order our BOI Reporting Service today, and we’ll help you meet this requirement without complications.

We’re also here to help with other aspects of your company’s regulatory standing. If you need additional support, feel free to do the following:

• Get a free Harbor Compliance Score™ to check for any unresolved regulatory concerns.
• Inquire about our additional services for a custom solution tailored to your needs.

To see how we can help you meet your obligations, schedule the demonstration of our award-winning software solution.