What this is: The Corporate Transparency Act in the United States mandates that non-exempt reporting companies submit Beneficial Ownership Information (BOI) reports to FinCEN. Deadlines differ based on whether the company existed before January 1, 2024, or was formed/registered on or after that date.
What this means: Up until now, the legal community has been puzzled about a dissolved reporting company's duty to file a BOI report, especially if it dissolves or initiates dissolution before the deadline. However, there is now guidance on these issues.
The federal Corporate Transparency Act (CTA) requires non-exempt “reporting companies” (corporations, LLCs and other similar entities) to submit Beneficial Ownership Information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN). The deadlines for submitting BOI reports vary depending on whether the reporting company was in existence prior to January 1, 2024 or formed (or, in the case of a non-US reporting company, registered) on or after January 1, 2024. These deadlines are clear, but what if a reporting company “dissolves” prior to its deadline for submitting its BOI report? What if it initiates its dissolution, but has not completed its “winding up” prior to its reporting deadline? The answers to these and other questions about a dissolved reporting company’s duty to file a BOI report have been confounding the legal community and others since the CTA’s passage. Now, we finally have guidance.
FinCEN’s 2 New FAQs
On July 8, FinCEN issued 2 new FAQs regarding reporting companies that “cease to exist” prior to their deadline to file an initial BOI report: FAQ C. 13., addresses companies that ceased to exist before January 1, 2024; and FAQ C. 14., addresses reporting companies created or registered in 2024 or later and cease to exist before their initial BOI report is due. These FinCEN FAQs read as follows:
C. 13. Is a company required to report its beneficial ownership information to FinCEN if the company ceased to exist before reporting requirements went into effect on January 1, 2024?
A company is not required to report its beneficial ownership information to FinCEN if it ceased to exist as a legal entity before January 1, 2024, meaning that it entirely completed the process of formally and irrevocably dissolving. A company that ceased to exist as a legal entity before the BOI reporting requirements became effective January 1, 2024, was never subject to the reporting requirements and thus is not required to report its beneficial ownership information to FinCEN.
Although state or Tribal law may vary, a company typically completes the process of formally and irrevocably dissolving by, for example, filing dissolution paperwork with its jurisdiction of creation or registration, receiving written confirmation of dissolution, paying related taxes or fees, ceasing to conduct any business and winding up its affairs (e.g., fully liquidating itself and closing all bank accounts).
If a reporting company continued to exist as a legal entity for any period of time on or after January 1, 2024 (i.e., did not entirely complete the process of formally and irrevocably dissolving before January 1, 2024), then it is required to report its beneficial ownership information to FinCEN, even if the company had wound up its affairs and ceased conducting business before January 1, 2024.
Similarly, if a reporting company was created or registered on or after January 1, 2024, and subsequently ceased to exist, then it is required to report its beneficial ownership information to FinCEN, even if it ceased to exist before its initial BOI report was due.
For specifics on how to determine when a company ceases to exist as a legal entity, consult the law of the jurisdiction in which the company was created or registered. A company that is administratively dissolved or suspended (because, for example, it failed to pay a filing fee or comply with certain jurisdictional requirements) generally does not cease to exist as a legal entity unless the dissolution or suspension becomes permanent.
[Issued July 8, 2024]
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C. 14. If a reporting company created or registered in 2024 or later winds up its affairs and ceases to exist before its initial BOI report is due to FinCEN, is the company still required to submit that initial report?
Yes. Reporting companies created or registered in 2024 must report their beneficial ownership information to FinCEN within 90 days of receiving actual or public notice of creation or registration. Reporting companies created or registered in 2025 or later must report their beneficial ownership information to FinCEN within 30 days of receiving actual or public notice of creation or registration. These obligations remain applicable to reporting companies that cease to exist as legal entities (meaning wound up their affairs, ceased conducting business and entirely completed the process of formally and irrevocably dissolving) before their initial beneficial ownership reports are due. If a reporting company files an initial BOI report and then ceases to exist, then there is no requirement for the reporting company to file an additional report with FinCEN noting that the company has ceased to exist.
[Issued July 8, 2024]
In sum, whether a dissolved reporting company needs to file an initial BOI report with FinCEN turns on whether it “ceased to exist” (as per FinCEN’s definition) prior to January 1, 2024:
- Non-Exempt reporting companies that “ceased to exist” prior to January 1, 2024, do not need to file an initial BOI Report with FinCEN; but
- Non-Exempt reporting companies that “cease to exist” on or after January 1, 2024, will need to file an initial BOI Report with FinCEN.
And, when a reporting company “ceases to exist” is determined by the laws of the reporting company’s state of formation or registration.
Dissolution vs. Cease to Exist: A Key Distinction for Non-Exempt Reporting Companies That Dissolved Prior to January 1, 2024
During the lifecycle of a company, the owners may decide for a variety of reasons that they no longer want the company to exist. There are formal steps to voluntarily “dissolving” a business entity. These steps are similar from state to state, but not always identical. And depending on the entity type (Corporation, LLC, LP, etc.), the process, or at least the terminology, also may vary, not only state to state, but even within the same state. Typically, after the entity’s owners have agreed to dissolve the entity, they file dissolution papers with the Secretary of State or similar office and begin “winding up” the entity’s affairs and liquidating its assets. During this dissolution process, the dissolving entity still exists, but legally it is not allowed to operate as a business except for the very limited extent needed to “wind up” and liquidate. A minority of states, such as Texas, Tennessee and Missouri require a second filing of Articles of Termination once the winding up process is complete and, upon making the second filing, the entity’s existence terminates. However, most states do not require this second filing.
When a non-exempt reporting company “ceased to exist” is an important question for those that dissolved prior to January 1, 2024, since FinCEN states in FAQ C. 13.: “If a Reporting Company continued to exist as a legal entity for any period of time on or after January 1, 2024 (i.e., did not entirely complete the process of formally and irrevocably dissolving before January 1, 2024), then it is required to report its beneficial ownership information to FinCEN, even if the company had wound up its affairs and ceased conducting business before January 1, 2024.” (Emphasis added.)
This is an easier determination in states that require a second filing upon the dissolved entity’s completion of its winding up. In those states, when the reporting company filed its Articles of Termination will be critical to determining whether the reporting company “ceased to exist” prior to January 1, 2024. In the many states that do not require that second filing, it may be crucial to pinpoint the date that the entity “ceased to exist,” at least if the entity completed its winding up close to the end of 2023.
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What is the Corporate Transparency Act?
The CTA was passed into law on January 1, 2021, after 13 years in the making. The CTA creates beneficial ownership disclosure requirements aimed to prevent criminals from using anonymously owned companies for illicit activities such as money laundering, tax evasion and terrorism financing. The CTA requires all “reporting companies” to disclose to the Financial Crimes Enforcement Network (FinCEN), personal identifying information (PII) for each of the “reporting company’s” “beneficial owners” and “company applicants.” FinCEN is storing the information in a secure, confidential database, not available to the public and only accessible to certain authorised parties. For more information on the Corporate Transparency Act, read Corporate Transparency Act Frequently Asked Questions.
What is a ‘disregarded entity’?
A “disregarded entity” is an entity that, for federal income tax purposes, is ignored or “disregarded.” A Single Member Limited Liability Company (SMLLC) is the most common type of disregarded entity. SMLLCs are a popular entity type for various business purposes, including real estate holdings. A SMLLC is an LLC owned by a single member, who can be either an individual or another business entity. To learn more, visit our article, EINs, Disregarded Entities and Beneficial Ownership Information Reporting Under the CTA.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
