FinCEN Requires Reporting from Dissolved Companies
On July 8, 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued interpretive guidance explaining that the beneficial ownership information (“BOI”) reporting requirement applies to certain legal entities that have been dissolved or otherwise ceased to exist after January 1, 2024. This new guidance dramatically expands the reporting requirement under the Corporate Transparency Act (“CTA”) and raises significant issues regarding compliance and liability for noncompliance.
The new guidance is effective immediately. Persons who own or manage entities that will dissolve in 2024, or have already dissolved this year—or which were not dissolved irrevocably—should review the guidance to determine their reporting obligations.
Background
Since January 1, 2024, millions of US and foreign reporting companies have been required to file BOI reports with FinCEN. For reporting companies that were created or registered prior to January 1, 2024, the company must file its initial BOI report by January 1, 2025. For reporting companies created or registered on or after January 1, 2024, the company must file its initial BOI report within 90 calendar days of creation or registration (with the time dropping down to 30 calendar days for 2025 and thereafter).
The CTA and its implementing regulation require a reporting company to file the BOI report.1 The implementing regulation does not address the dissolution or termination of the existence of a legal entity prior to January 1, 2024 (or during the 30 or 90 day registration period), and the preamble to the implementing regulation notes that “FinCEN does not expect a reporting company to file an updated report upon company termination or dissolution.”2
New Guidance
Since the BOI reporting obligation is placed on the legal entity, and not an owner or manager of the legal entity, one could have reasonably assumed that the existence of the reporting company is a prerequisite to being required to file a BOI report.
However, FinCEN’s new guidance states that any reporting company that was not “formally and irrevocably” dissolved prior to January 1, 2024 (and is not exempt), no matter the current condition of its existence, must file a BOI report within the deadlines set forth in the implementing requirements. Only reporting companies that “formally and irrevocably” ceased to exist as legal entities prior to January 1, 2024 are excluded from BOI reporting requirements.
This expansion would cover reporting companies formed prior to January 1, 2024 that were dissolved during 2024, even though their obligation to file with FinCEN does not come due until January 1, 2025. It also would cover reporting companies formed on or after January 1, 2024 if they dissolved prior to the 30 or 90 day reporting deadline (e.g., acquisition vehicles that are immediately dissolved). Further, it even covers reporting companies that were formed and dissolved prior to January 1, 2024 if such dissolution is not irrevocable, such as if the entity was administratively dissolved but may be reinstated.3
Takeaways
FinCEN’s new guidance dramatically expands the BOI reporting requirement to include legal entities that have been dissolved or otherwise ceased to exist on or after January 1, 2024. This means that entities that no longer have corporate personhood or the capacity to act are subject to a legal obligation to file BOI reports to FinCEN. Notably, FinCEN’s new guidance does not identify the natural person who is expected to prepare and submit a dissolved reporting company’s BOI report (and who, presumably, will be liable for a failure to file). While one might speculate that such obligation falls on a corporate successor, a prior owner, or a prior senior officer, the lack of specificity of who is required to act and who is liable for the failure to comply is concerning.
Further, the new guidance does not explain what information must be reported by a dissolved reporting company. For example, an entity may terminate employees and service providers as part of its winding-up and distribute its remaining capital to some or all of its owners (e.g., in the context of a fund dissolution). If a dissolved reporting company is expected to ascertain its beneficial owners as of the last moment of its existence, such actions may significantly reduce the number of reportable persons (or eliminate them entirely, if for example, the winding-up process results in the dissolving entity qualifying for the subsidiary exemption).
Finally, nothing in life is free. If natural persons are required to submit a form to FinCEN on behalf of a reporting company, those persons (or their employers) will expect to be compensated for their action. For reporting companies that were dissolved prior to July 8, 2024, filers will need to carefully consider issues related to how these individuals are compensated and who will bear the filing costs, as well as other tail risks such as indemnification and insurance coverage.
1 31 U.S.C. § 5336(b)(1)(A); 31 C.F.R. § 1010.380(a)(1).
2 87 Fed. Reg. 59,596, 59,514 (Sept. 30, 2022).
3 See Jonathan Wilson, Dissolution and the Corporate Transparency Act (Feb. 13, 2024) (“A corporation that was administratively dissolved may apply for reinstatement for up to five years after the effective date of dissolution”).
