CTA Exemptions - Public Companies

Someone recently asked me if their company was exempt from the Corporate Transparency Act.

There are 23 separate exemption types from the CTA’s beneficial ownership reporting requirement. The exemptions are listed in order in FinCEN's proposed regulation, which would be published at 31 CFR 1010.380 when it takes effect.

The first exemption applies to what are euphemistically called "public companies."

Subsection 1010.380(c)(2)(i) of the proposed regulation exempts “any issuer of securities that is:

(A) An issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l); or

(B) Required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d))."

Understanding these two prongs of the public company exemption is important for companies who hope to satisfy this exemption.

Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”) mandates that a company with more than $10 million in assets with securities that are “held of record” by more than either 2,000 persons (or more than 500 persons who are not accredited investors) must register its securities with the SEC.

In contrast, Section 15(d) of the Exchange Act applies to a company that has registered its securities with the SEC. In combination, these two provisions capture both a company whose securities ought to be registered along with a company whose securities have been registered. A company that falls into either of these two categories is exempt from the CTA’s filing obligation.

Earlier, I referred to companies that are euphemistically called “public.” The OTC marketplace permits investors to trade securities from various issuers. Some issuers have securities that are registered under the Exchange Act, but others are not. Companies who think of themselves as “public” because they are listed on the OTC should be aware of their actual Exchange Act registration status when evaluating their exemption status under the CTA. Merely being listed on the OTC will not be enough. Companies trading on the OTC marketplace that are not registered or required to be registered (under Sections 15(d) or 12 of the Exchange Act) will not be exempt from the CTA’s filing obligation.

Update: FinCEN issued its Final Rule on beneficial ownership reports under the Corporate Transparency Act on September 29, 2022.  Portions of this post may be superseded by the guidance in the Final Rule.