If you’re trying to figure out whether your company qualifies as a “reporting company” under the Corporate Transparency Act (CTA), the answer isn’t always straightforward. The classification depends on how the company was formed, its activities, and whether it falls under any exemptions.
What Is a Reporting Company?
A “reporting company” is any corporation, limited liability company (LLC), or similar entity that is created or registered to do business in the United States by filing a formal document with a secretary of state or equivalent office. This includes both domestic companies and foreign entities registered in the U.S.
However, not all companies are automatically required to report. The CTA provides exemptions based on certain criteria related to the company’s size, activities, and revenue.
Does Revenue or Activity Impact Reporting Status?
In some cases, yes. While the act of filing with a state office is a key factor in determining whether a company qualifies as a reporting company, other aspects like revenue and activity can influence whether an exemption applies. For example:
⦁ Revenue Threshold: Companies that report more than $5 million in gross receipts or sales in the previous year and meet additional criteria might qualify for an exemption from reporting.
⦁ Inactive Entities: Certain inactive companies may also be exempt from reporting requirements, depending on their specific situation.
On the other hand, companies engaging in passive activities, such as owning rental properties, are not automatically exempt from BOI reporting simply because their activities are minimal. Additionally, being unprofitable or generating low revenue doesn’t necessarily mean a company is exempt.
Are Sole Proprietorships Considered Reporting Companies?
Generally, no. Sole proprietorships are not considered reporting companies unless they have been created or registered in the United States by filing a document with a secretary of state or similar office. Sole proprietors who obtain an Employer Identification Number (EIN) or file for a business license are not automatically considered to have formed a new legal entity under the CTA.
Do Companies in U.S. Territories Qualify as Reporting Companies?
Yes. Companies formed or registered to do business in U.S. territories—such as Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Northern Mariana Islands—are also considered reporting companies if they do not meet any of the CTA’s exemptions. These entities must submit beneficial ownership information (BOI) to FinCEN, just like businesses in the 50 states and the District of Columbia.
Determining whether your company qualifies as a “reporting company” under the CTA involves considering factors like how it was formed, its revenue, and its activities. While there are some exemptions, many entities that have been formally created or registered in the U.S. will need to comply with the beneficial ownership reporting requirements. Always consult with a legal expert to ensure your company is meeting its obligations under the law.