Are Public Companies Exempt From The Corporate Transparency Act?

There are 23 separate exemptions from the CTA's beneficial ownership reporting requirement. The exemptions are listed in order in FinCEN's Final Rule at 31 CFR 1010.380 and take effect on January 1, 2024.

CTA Exemptions Generally

In general, the CTA exempts companies that already report their beneficial ownership information to the U.S. government under a separate legal framework. FinCEN's Final Rule addresses each exemption separately in subsection 1010.380(c)(2).

Exemption Number 1 – Securities Reporting Issuer

Subsection 1010.380(c)(2)(i) of the Final Rule 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.

Exchange Act Sections 12 and 15(d)

Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") mandates that a company must register its securities with the SEC if it exceeds two thresholds.

Such a company must register its securities with the SEC if (i) it has more than $10 million in assets, and (ii) has more than 2,000 accredited investors of record or more than 500 non-accredited investors of record.

In contrast, Section 15(d) of the Exchange Act applies to a company that has registered its securities with the SEC.

As a result, this first CTA exemption applies to a company that either has registered its securities under Section 15(d) of the Exchange Act or is required to register its securities under Section 12 of the Exchange Act.

A company that falls into either of these will not need to appoint a company applicant or file a beneficial ownership report.

Beware The Pink Sheets

Companies whose securities can be traded in an exchange, like the OTC marketplace, for example, often refer to themselves as "public." Because exchanges will often provide a quoted price per share, investors sometimes think of these companies as similar to those who have registered their securities with the SEC. They are not.

The OTC marketplace and some other exchanges permit investors to trade securities from various issuers (sometimes called "over the counter" or "OTC" securities). The trades that take place are secondary trades, in which one investor sells a security to a second investor. They are not issuer transactions where the company itself sells securities to investors.

Some issues quoted in the OTC marketplace have registered securities under the Exchange Act. Other OTC securities have not been registered (and are not required to be registered).

Consequently, management of an OTC-listed company will need to be aware of the company's actual Exchange Act status. The CTA does not exempt "OTC securities" or OTC-listed companies. OTC-listed companies 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.

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