There are 23 separate types of exemption for companies 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.
CTA ExemptionsIn general, the CTA exempts companies that the federal government regulates under some other law. The proposed regulation addresses each exemption separately in subsection 1010.380(c)(2).
The CTA's first exemption applies to "public companies" (although this term is a euphemism).
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.
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. The first is having more than $10 million in assets. The second applies when more than 2,000 accredited investors or more than 500 non-accredited investors hold the company's securities "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, the CTA exempts a company it it registers its securities or if Section 12 requires the registration of its securities. A company that falls into either of these will not need to file a beneficial ownership report.
Earlier, I wrote that "public company" was a euphemism.
The OTC marketplace permits investors to trade securities from various issuers. Some of these issuers have registered securities under the Exchange Act. Other issues do not have registered securities. An OTC-listed company will need to be aware of its actual Exchange Act status. The CTA does not exempt all 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.