Understanding How the Corporate Transparency Act Affects Large Operating Companies

To qualify for an exemption to the beneficial ownership information (BOI) reporting requirement under the Corporate Transparency Act (CTA), large operating companies must meet specific criteria. If an entity cannot meet at least one of the conditions listed in the CTA, it will be required to submit a beneficial ownership information (BOI) report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

Given that the CTA only began to take effect on January 1, 2024, the rules governing its exemptions are still not widely known and, in some cases, are open to interpretation. Therefore, you may be left wondering whether your entity is required to submit a BOI report.

To clear any confusion or uncertainty, this article will break down the exemption requirements for large operating companies under the Corporate Transparency Act. We’ll also show you how Harbor Compliance can streamline the BOI reporting process if you conclude that your entity doesn’t qualify for an exemption after all.

What Is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) was enacted as part of the National Defense Authorization Act to combat the use of business entities for illicit activities like money laundering and terrorist financing.

Under this legislation, reporting companies—corporations, limited liability companies (LLCs), and other entities formed by filing formation documents with a secretary of state or similar authority in the U.S.—must disclose information on their beneficial owners to FinCEN.

According to the CTA, a beneficial owner is any individual who either:

• Owns or controls 25% of the entity
• Has substantial control over key decisions and functions in the company

What Are the Exemption Criteria Under the CTA for Large Operating Companies?

Under the CTA, certain categories of entities are exempted from reporting their beneficial ownership information (BOI) to FinCEN. Large operating companies are one of the 23 exempt categories.

To qualify as a large operating company eligible for exemption, an entity must meet three sets of requirements which focus on:

1. The number of full-time employees at the company
2. The entity’s operating presence
3. The entity’s annual gross receipts or sales

1. The Number of Full-Time Employees at the Company

According to the CTA, large operating companies must have over 20 full-time employees in the U.S. to qualify for an exemption. A full-time employee is defined as an individual who works for the firm for at least 30 hours per week on average.

It’s crucial to note that the employee headcount cannot be aggregated across affiliated entities to meet this requirement. In other words, the employees of an affiliated entity are not regarded as employees of the parent company under the CTA.

2. The Entity’s Operating Presence

The entity must have an operating presence in a physical office in the U.S. where it regularly conducts its business. The office must be separate from any unaffiliated entity's place of business. Furthermore, the CTA stipulates that the entity must either own or lease this physical office to fulfill this requirement.

3. The Organization’s Gross Receipt

The entity’s federal income tax or information return for the previous year has to show more than $5 million in gross receipts or sales. These annual receipts or sales must be reported on one of the following:

• IRS Form 1120
• Consolidated IRS Form 1120
• IRS Form 1120-S
• IRS Form 1065
• Other applicable IRS Forms

Unlike the full-time employee headcount, affiliated entities' gross receipts or sales can be taken into account to meet this requirement.

Moreover, even when the gross receipts or sales from sources outside the U.S. are excluded, the entity’s remaining amount must still exceed $5 million.

Subsidiaries of Exempt Entities

Under the CTA, subsidiaries of exempt entities, such as large operating companies, are also exempted from reporting their BOI. To qualify for this particular exemption, an affiliated entity must be wholly owned or controlled by a large operating company or another entity that falls into an exempt category, such as a bank, investment company, or an accounting firm.

The CTA requires wholly owned subsidiaries to report only the name of the large operating company as its beneficial owner rather than individual beneficial owners.

Large Operating Companies Under the CTA—Edge Cases

In the context of the CTA’s definition of large operating companies, edge cases refer to entities that do not fully satisfy the standard criteria outlined in the Act, thus requiring careful evaluation. These edge cases generally fall into two categories:

1. Entities that have recently qualified as large operating companies
2. Large operating companies that no longer meet the qualification criteria

1. Newly Qualified Large Operating Companies

This situation occurs when an entity that was a reporting company and had submitted its BOI to FinCEN meets the criteria to qualify as a large operating company and, therefore, becomes exempt. In such cases, the newly qualified entity should file an updated BOI report to indicate its exempt status.

2. Large Operating Companies That No Longer Meet the Qualification Criteria

Entities within this category typically include large operating companies in the following situations:

• Their employment numbers have dropped below the threshold of 20 full-time employees.
• They no longer have an operational presence in a physical location in the U.S.
• Their annual receipts or sales have fallen below $5 million.

These entities and their subsidiaries are no longer considered exempt and must duly report their BOI to FinCEN. The deadlines for submitting the initial BOI report differ slightly depending on when the company was formed.

Companies that have existed since before 2024 and which lost their exempt status in 2024 can report their BOI by choosing the longer of the two deadlines:

1. Within the remaining days in the one-year filing period
2. Within 30 calendar days of losing the exemption status

Entities outside this category (those formed in 2024 and later) are expected to report their BOI within 30 days of losing their exempt status.

Navigating the Corporate Transparency Act With Harbor Compliance

Although large operating companies, as defined by the CTA, are generally exempt from reporting their BOI, there are edge cases where entities may begin to qualify or stop qualifying for this exemption. In these scenarios, the entities must file a BOI report to update FinCEN on their status. Keep in mind that a parent company’s exempt status also affects its subsidiaries.

If you conclude that you have lost your exemption status, it’s imperative to submit your initial BOI report within the prescribed time frame. Luckily, Harbor Compliance makes this process effortless with its BOI Reporting Service.

According to FinCEN, preparing and filing a single BOI report takes around three hours—you can save this time if you delegate your BOI reporting duty to Harbor Compliance. We’ll securely obtain all the necessary information on your beneficial owners using our online forms, prepare the beneficial information report, and submit it to FinCEN in a timely manner.

If your BOI details change at some point after filing the initial report, there’s nothing to worry about. We’ll prepare and submit an updated report promptly—our service includes submitting up to four initial, updated, and corrected BOI reports in a single calendar year.

Benefits of Using Harbor Compliance’s BOI Reporting Service

Below are some of the reasons why outsourcing your BOI reporting requirement to Harbor Compliance is a smart move:

• Our team of experts manages the BOI reporting service on your behalf, covering everything from initial filings to updates and corrections for a single flat fee.
• You gain peace of mind knowing your entity’s BOI reports are managed and filed promptly and accurately. This also allows you to avoid fees and penalties for failing to comply with the BOI reporting requirement.
• Outsourcing the filing process saves time that can be redirected to critical business activities.
• We send regular automated notifications to remind you to check whether your BOI details need updating.

Additionally, our Records Manager software, which is offered separately, assists your organization in tracking ownership and leadership information, which is particularly useful for identifying your beneficial owners.

The Process of Ordering Harbor Compliance’s BOI Reporting Service

Order our BOI Reporting Service by taking the following steps:

1. Go to the sign-up wizard page and select your entity type (single or multiple).
2. Populate the provided form with the necessary details, such as your contact information and company name.
3. Submit your order.

Additional Services Harbor Compliance Provides

We offer various services beyond BOI reporting, all aimed at helping entities meet regulatory requirements across the U.S. The table below breaks down our most popular service categories:

Large Operating Companies Exemption FAQs

In this section, we’ll answer some frequently asked questions about the impact of the CTA on large operating companies. To learn more, visit our extensive Information Center.

Leveraging Harbor Compliance’s Service To Meet Your Entity’s BOI Reporting Requirement

Outsourcing your BOI reporting duties to Harbor Compliance eliminates the hassle of preparing and filing initial, updated, and corrected records, especially if your company ceases to qualify as a large operating company. Ordering our BOI Reporting Service saves time while ensuring peace of mind, letting you focus on your core responsibilities without worrying about fines and penalties.

If you’re ready to partner with us, start by assessing your overall regulatory standing by getting your FREE Harbor Compliance Score™. If you spot any areas of concern, give us a call, and we’ll find a solution tailored to your needs. You can also schedule a demo session of our award-winning software and see how it helps you meet regulatory requirements and remain in good standing.