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We’ve blogged previously about the beneficial ownership reporting obligations that will be imposed on a range of private companies under the Corporate Transparency Act.  This Dechert memo provides a handy reference tool for companies concerning what they will be required to disclose once FinCEN implements the reporting system on January 1, 2024 (companies organized prior to that date will have until January 1, 2025 to come into full compliance).

The memo also addresses several FAQs on various aspects of the reporting system, including the type of information that will be collected, the definition of “beneficial owner,” the timing of filing disclosure reports, and the entities that are subject to – and exempt from – compliance with the Act. As this excerpt on applicable exemptions indicates, the good news is that many businesses will not be subject to a reporting requirement:

The CTA and Final Rules provide 23 categories of business entities that will not be considered reporting companies. For example, public companies, registered broker dealers, and certain investment companies, investment advisers, banks, bank holding companies, credit unions, money-transmitting businesses, commodity trading companies, pooled investment vehicles, 501(c) tax-exempt entities, inactive business entities and insurance companies will not be required to submit their beneficial ownership information. A more detailed analysis of some of these exemptions is available in our November 2022 OnPoint and in the Frequently Asked Questions published by FinCEN available here.

Perhaps most relevant to clients contemplating non-public M&A transactions, business entities in the two following groups will be exempted from disclosing beneficial ownership details:

– any business entity that (i) employs more than 20 employees on a full-time basis in the U.S.; (ii) filed in the previous year income tax returns in the U.S. demonstrating more than $5,000,000 in gross receipts or sales (including the receipts or sales of subsidiaries and other entities through which such entity operates), and (iii) has an operating presence at a physical office within the U.S.; or

– any business entity owned or controlled by a business entity that is itself exempt from the beneficial ownership disclosure, with some limited exceptions.

As a result of the large operating company exemption, many larger operating companies and their subsidiaries will be exempt from having to disclose beneficial ownership details. However, smaller operating companies and passive holding companies may need to submit disclosure reports if no relevant exemption applies.

– John Jenkins