The Corporate Transparency Act (“CTA”) requires most entities to file a beneficial ownership information report with the Financial Crimes Enforcement Network (“FinCEN”).
Recently, FinCEN provided guidance about the reporting requirements for entities that have “ceased to exist”.
FinCEN instructs that an entity that ceased to exist as a legal entity before January 1, 2024, is not required to report its beneficial ownership information to FinCEN. However, whether an entity has ceased to exist may not be as straightforward as it sounds.
FinCEN makes clear that an entity ceases to exist only if it entirely completed the process of formally and irrevocably dissolving.
Generally, state law determines when an entity has completed this process. Many states provide a period of time where a dissolved entity continues in existence for the purpose of winding up its activities, such as paying debts and selling assets.
FinCEN takes the position that an entity has not ceased to exist until it has completed these winding-up activities. Therefore, if an entity has stopped conducting business, but has not completed the state-required process for dissolving and winding up its activities, it has not ceased to exist for CTA purposes.
Additionally, FinCEN notes that an entity does not cease to exist unless the dissolution is permanent. In states where an entity is administratively dissolved for failure to file reports or pay required fees, there is often a simple process for reinstating the entity. The dissolution of these entities is not considered permanent, and the entity has not ceased to exist for CTA purposes unless and until the dissolution becomes permanent.
If an entity continued to exist as a legal entity for any period of time on or after January 1, 2024, then it is required to report its beneficial ownership information to FinCEN.
Similarly, if an entity was created 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 beneficial ownership information report was due.
It should be noted that there is an exemption to the CTA’s reporting requirements for “inactive entities” that is separate from the analysis of whether an entity has ceased to exist. In order to qualify for the inactive entity exemption, ALL SIX of the following criteria must be met:
1. The entity was in existence on or before January 1, 2020.
2. The entity is not engaged in active business.
3. The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially.
4. The entity has not experienced any change in ownership in the preceding twelve-month period.
5. The entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period.
6. The entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.
The attorneys at AKC Law have been following the CTA closely and are committed to helping clients navigate the reporting requirements. If you have any questions or want to
discuss whether your business is subject to the CTA, please contact Payton Hostens at (402) 392-1250 or [email protected].